Your family member, close friend, or otherwise a trusted individual may have gone out on a limb to help you out and co-sign a loan with you. So the last thing you may want is to let them down with your having to file for bankruptcy. This is because, even though you may consider your bankruptcy case a personal, private matter, it may directly and negatively affect your co-signer in some sort of way. With that being said, please read on to discover what happens to your co-signers if you file for bankruptcy and how a seasoned Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can help you make decisions based on your and your co-signers’ best interests alike.
When would I have a co-signer for a loan?
You may have a co-signer on more personal loans than you can initially think of off the top of your head. Just to name a few examples, a lender may have asked you to obtain a co-signer for a loan to pursue higher education, a loan to pay off an unexpected auto repair bill, a loan to pay off a significant home improvement project, etc. Now, a lender may have required this guarantor for any of the following reasons:
- You may have had a short credit history at the time.
- You may have already had a history of bankruptcy filing(s) at the time.
- You may have had an average or less-than-average credit score at the time.
- You may have been unable to put up collateral for the specific type of loan requested.
- You may have requested a specific loan amount that was well above what you could repay.
In any event, you must carefully take inventory of your outstanding loans and identify which ones involve a co-signer. This is because you will want to know exactly who might be personally affected by your consumer bankruptcy filing.
What happens to my co-signers if I file for consumer bankruptcy?
If you pursue a Chapter 7 bankruptcy filing, you should know that your co-signers will not receive the same protection from creditors as you. Specifically, the automatic stay, which orders your creditors to seize their collection activities for outstanding debts, does not extend to your co-signers. What’s more, the debt discharge you are granted after your case similarly does not apply to your co-signers. This is to say that creditors may still pursue your co-signers and hold them legally obligated to pay off these loans.
But if you qualify for a Chapter 13 bankruptcy filing, you may feel better knowing that the automatic stay also protects your cosigners from creditors collecting for consumer debts. However, these creditors may petition the court to lift this automatic stay for any of the following reasons:
- A creditor may argue that you did not propose to pay the debt in full through your three- to five-year Chapter 13 repayment plan.
- A creditor may argue that they will suffer irreparable harm if this debt does not get paid in full.
- A creditor may argue that your co-signer received the consideration for their claim.
In conclusion, at this time, what matters most is that you retain strong legal representation to get you through this critical case. Please contact a competent Louisville, Kentucky consumer bankruptcy lawyer from Schwartz Bankruptcy Law Center today.