Protecting Co-Signers When You File for Bankruptcy

If you are thinking about filing for bankruptcy, you might be wondering what will happen to your co-signers—a parent, a sibling, or a close friend, for instance. A co-signer is someone who offers to co-sign a loan for which you are applying because, as the Consumer Financial Protection Bureau (CFPB) explains, “the lender will not offer you the loan based solely on your own income and credit record. The co-signer takes risks when agreeing to this role. Indeed, the CFPB clarifies that co-signers are obligated to repay any loan to which she or he co-signs. If the borrower fails to make payments, the “co-signer will be liable for repayment.”

To be clear, if you decide to file for bankruptcy and you have a co-signer on one or more of your loans that you are seeking to have discharged, you can end up doing a disservice to your co-signer. Are there other options?

You Can Reaffirm Your Debt

If you file for Chapter 7 bankruptcy, you can avoid leaving a co-signer with liability for a debt by reaffirming the debt. What does this mean? In reaffirming a debt, an individual says that she or he will not seek to have that particular debt discharged in the bankruptcy proceeding and will continue to be liable for that specific debt.

Reaffirming a specific debt will not have any bearing on your ability to seek a discharge of other consumer debts in Oklahoma City.

Continue to Pay Off Your Debt After Bankruptcy

When you file for bankruptcy and have your consumer debts discharged, you are not prohibited from making payments on any single debt. While most debtors file for Chapter 7 bankruptcy specifically to avoid having to continue making such payments, you can do so in order to prevent your co-signer from becoming financially liable for the debt.

Know That the Chapter 7 Bankruptcy Stay Does Not Apply to Your Co-Signers

When a consumer files for Chapter 7 bankruptcy, debt collectors must stop trying to collect from you. This is known as a bankruptcy “automatic stay.” You should know, however, that the automatic stay will not cover your co-signers. Even after you file for bankruptcy and are protected by the automatic stay, a co-signer will be liable for what you owe.

Discuss Your Bankruptcy Questions with an Experienced Advocate in Oklahoma

If you have questions or concerns about Chapter 7 bankruptcy and co-signers, a dedicated Oklahoma bankruptcy attorney can speak with you today. Contact Deborah Brooks & Associates, P.C. to learn more about how we can assist with your case.