Filing for bankruptcy is a decision that takes a significant amount of consideration, as it can have a drastic impact on your life. However, in some instances, it’s not just your life and finances that must be considered. If you have a co-signer on any loans that you have fallen behind on, filing for bankruptcy can impact them. As such, the following blog explores what you should know about how bankruptcy can affect your co-signers and why working with an Orange County consumer bankruptcy attorney is imperative if you’re considering filing.
What Will Happen to My Co-Signers if I File Bankruptcy?
When someone co-signs on a loan for you, they are essentially holding themselves liable in the event you cannot make payments. This means they will be liable for any debts you accumulate. As such, if you file for bankruptcy, your co-signer can be heavily impacted. This is because bankruptcy only eliminates the filer’s legal obligation to repay a debt, and does not offer the same protection for a co-signer.
You should also note that, under Chapter 7, your co-signer will not receive the same automatic stay you receive. However, under Chapter 13 this differs. When you file Chapter 13, the automatic stay will protect your co-signers. Additionally, you’ll find that the three to five-year repayment plan can help you get back on top of debt to pay it off, alleviating the responsibility from your co-signers.
Is There Anything I Can Do to Reduce Liability for Debt?
If you are considering bankruptcy but have co-signers on your loans, one option is to create a reaffirmation agreement with the creditor. Doing so will relinquish your right to a discharge by continuing to hold you liable for the debt again. While this is not typically an option most debtors wish to consider, if you want to protect your co-signer, this is an ideal option.
One option to help protect your co-signers is by paying the debt back even after it’s discharged in Chapter 7. You may be able to pay the debt off in full or make monthly payments with the lender to prevent your co-signer from facing liability for the debt. It’s important to understand that if you want to pay a debt off in full, you should not do so prior to filing bankruptcy, as the court may view this as favoring one creditor over another, which can result in the payment being rescinded and split among all creditors.
If you’re considering filing for bankruptcy, it’s imperative to ensure you connect with ane experienced attorney as soon as possible. This process is incredibly complicated, especially if you have co-signers you wish to consider. At the Law Offices of Michael D. Pinsky, P.C., we understand that this is a tough situation, which is why our firm will examine all possible options so you can make the most informed decision for your circumstances. Contact us today to learn how we can help you reduce your debt and regain control of your finances.
