On Schedule G of any bankruptcy petition you will find a list any co-debtors or co-signers that you may have on any of your debts. In a chapter 7 case your co-signer is not affected by the bankruptcy filing, for better or for worse. The co-signer’s credit is not impacted by the filing and they do not take any hits on their credit report. However, the co-signer is also not stayed from collections and is not discharged at the end of the case. This may or may not be a problem depending on the type of debt and the Debtor’s intentions. If the debt is a secured debt like a mortgage or a car payment then the Debtor has an option to reaffirm the debt and continue making payments. Therefore the co-signer is not harmed by the filing since the Debtor will continue to perform on the contract. As it is, outside of bankruptcy if the Debtor defaults the co-signer becomes responsible. Similarly if the debt is student loan debt, the debt will not be discharged at the end of the case and the Debtor will still need to make payments. If the Debt is a general unsecured debt the debt will most likely be discharged and the co-signer will remain obligated.
In a chapter 13 case the co-signer is impacted by the bankruptcy filing. The co-signer is afforded a co-debtor automatic stay. Because the bankruptcy code anticipates that in order to propose a successful plan of reorganization, the Debtor and co-debtor should be stayed so the plan can be confirmed. Like the automatic stay for the Debtor, the co-debtor stay, prevents any collecting proceedings to be brought against the co-debtor. The co-debtor stay can be lifted for the same reasons the debtor’s stay can be lifted.
In many cases the Debtor is the co-signer and the no filing Debtor is the primary on the note. In this situation any dischargeable debt can be surrendered and discharged by the filing Debtor and the co-debtor will stay responsible. If you have any further questions about what affects bankruptcy may have on a co-signer, call the experienced bankruptcy attorneys at Fears | Nachawati. If you are considering filing bankruptcy call us for a free consultation at 1.866.705.7584, or send an email to fears@fnlawfirm.com.