Your cosigner has some big problems if you file bankruptcy. First of all let’s talk about who a cosigner is. Remember when you couldn’t get that loan unless someone signed the loan for you? Most typically this involves car loans, or if you had been arrested, a bail bond. When someone signs with or for you they are a cosigner.
Often they come into my office despairing that the person they signed for is no longer making the payments on the loan and filed bankruptcy. They do not understand why they are being chased by the creditor. The act of consigning is not just adding your credit to the other person’s loan application. They are signing on and promising to pay the whole loan. Unless their finances can allow them to pay the obligation they should have never sign in the first place. Did the lender tell you they are a secondary? There is no such thing. Anyone who signs is a first. If the lender has to collect they go after the biggest, easiest target. Usually that is the the cosigner.
If your cosigner winds up paying the loan off, they have a right of action to sue you for contribution. If you file bankruptcy your consigning friend, or relative is left holding the bag. Your chapter 7 bankruptcy prevents them from coming after you for payment. When you fail to pay on a cosigned debt you destroy the good name and credit score of the person who was kind enough to help you when you were down.
If you file a chapter 13 bankruptcy your cosigner is a bit better off. They are a creditor in you bankruptcy just like the original lender. You chapter 13 automatic stay protects them to the extent that your plan pays the lender. If your plan dies not pay the lender in full, it can get relief from stay to chase them down for the balance. To be fair to your cosigner your plan should pay the lender on the cosigned debt in full.
As I said previously if you file chapter 7 bankruptcy your cosigner cannot come after you for payment. Nothing in the bankruptcy code prevents you from paying them on your own. A faceless corporate lender is one thing. Mom, grandma or your best friend is something else entirely. Things may be hard, but it is not too late to do the honorable thing. You can repay them for what they had to pay when you let them down.
Other Attorneys playing the bankruptcy alphabet game:
- C is for Creditor
- C is for Credit Counseling in Bankruptcy
- C is for Counseling
- C is for Chapter 7
- C is for Credit Union
- C is for Conversion
- C is for Cram Down
- C is for Competence and Compassion
- C is for Creditor
- C is for Chapter of Relief
- C is for Creditors Meeting
- C is for Collection Agencies
- C is for Credit Counseling
- Ditto C is for Credit Counseling
- San Francisco Bankruptcy Attorney, Jeena Cho says C is For Cars, one of my favorite topics.
- St. Louis, Missouri Bankruptcy Attorney, Nancy Martin writes C is for Claims.
- Birmingham Bankruptcy Attorney, Elizabeth Johnson says C is for Credit Counseling.