Wednesday, August 24, 2016
What Happens To My Co-Signer If I File Bankruptcy?
Not all debts are taken out by a single person, sometimes a co-signer is needed in order to obtain approval from the lending institution. Co-signed debts are debts where more than one person promises to repay the money loaned, and if one of the people who signed on the dotted line is not able to make payments the bank will look to the other debtor for repayment. This type of loan puts both people on the hook for making the payments, and when one of these people seeks the protection of bankruptcy the other signer is left as the only party to which the creditor will seek to collect.
When you file bankruptcy all of your debt is included, and that includes any debt that was incurred jointly with another person. The impact of the decision to file bankruptcy when you have joint debt is that the joint debt holder remains liable. So, if you have co-signers on some of your loans, it is important to understand that while you will not have to repay the loan, your consigner will be held responsible for payment. There are some protections offered to co-signers though, such as:
• If you file a Chapter 13 and your co-signer does not also take bankruptcy, the law provides the protection offered by the automatic stay to your non-bankrupt co-debtor. This means that upon filing the lender is not permitted to contact the co-signer about the debt. In cases like this it is not uncommon for the lender to file for relief from the stay, so they can continue to pursue payment from the non-bankrupt co-debtor who signed the note.
• Co-signers who do not also file bankruptcy will have the ability to negotiate with the lender for more favorable terms. Lenders are not permitted to speak with you about a debt that has been discharged because the bankruptcy law prohibits that type of activity, but non-filing co-signers are fair game. If your lender is willing to rework the loan for your co-signer, there will be no communication barriers in place as a result of the bankruptcy to that process.
If you are considering filing bankruptcy and have loans that have been co-signed, make sure your co-signer knows you are thinking about filing so they can take action to protect themselves if desired. If your co-signer is also your spouse, there may be benefits to just one of you filing, or it might be in your family’s best interest to file a joint bankruptcy case. Call us today for more information.For more information about how co-signers are treated in bankruptcy, call us today or reach us online at www.law-ri.com. We offer appointments at multiple locations for your convenience and can schedule a time to visit with you today.