Protecting Cosigners in a Consumer Bankruptcy Filing

Are you thinking about filing for consumer bankruptcy but have concerns about protecting cosigners on some of your loans?  You’re not alone.  According to a recent article in the Los Angeles Times, debtors across the country—from California to Illinois to Florida—need to consider the ramifications of personal bankruptcy on their cosigners.  The big question is this: will filing for a Chapter 7 bankruptcy or Chapter 13 bankruptcy affect the credit of the cosigner?  It’s important to keep in mind that all bankruptcy filings aren’t the same, but cosigners could, in fact, be negatively affected by your decision to file for bankruptcy.
Bankruptcy law is extremely complicated, and it’s important to discuss your situation with an experienced Oak Park bankruptcy lawyer.  Are you considering bankruptcy but still have questions?  Contact the Emerson Law Firm to learn more about how we can assist you.
How Does Bankruptcy Affect Cosigners?
First, it’s important to understand what it means to have a cosigner.  In short, a cosigner is someone who’s responsible for paying your debt if you can’t pay it back.  If a creditor doesn’t believe you’ll have the ability to repay a loan on your own, that creditor can require a cosigner—typically a person with better credit or more income than you.
Depending on whether you file for Chapter 7 or Chapter 13 bankruptcy, your cosigner is likely to be affected in different ways.  Remember, when you file for consumer bankruptcy, you’re only discharging your debts, not those of a cosigner.  Here’s how different types of bankruptcy can negatively impact your cosigner:
·      Chapter 7 bankruptcy: filing for Chapter 7 “halts debt collectors in their tracks” for the debtor who files, since it essentially allows you to wipe out your debts.  However, that kind of debt protection does not extend to any cosigner.  In other words, creditors can continue to pursue a cosigner for your debt even after you’ve declared bankruptcy.
·      Chapter 13 bankruptcy: filing for Chapter 13 doesn’t typically wipe out all debts, but rather restructures them.  Since filing for this type of bankruptcy usually results in a repayment plan for the debtor, it provides “more safeguards for cosigners.”  In other words, Chapter 13 gives you the opportunity to pay off a debt with a cosigner.
Protecting Cosigners When You File
How can you protect a cosigner if you’re planning to file for personal bankruptcy?  It’s very important to discuss your options with an experienced Chicago bankruptcy lawyer, as these matters can be complicated.  But generally speaking, your options may include:
·      Paying off the debt after bankruptcy: filing for Chapter 7 bankruptcy means you’re not required to pay back your debts, but you may choose to continue paying back a debt with a cosigner—until it’s paid off—in order to protect that cosigner.
·      Reaffirm the debt: before your debts are discharged in a Chapter 7 filing, you’ll have the option to reaffirm any of your debts.  By reaffirming a debt, it won’t be discharged, and you’ll be responsible for the debt after your bankruptcy filing.  Typically, reaffirming debts isn’t beneficial, but a bankruptcy lawyer can advise you about whether this is the best option to protect a cosigner.
Even though cosigners have more protection with a Chapter 13 bankruptcy filing, it’s still a good idea to discuss your situation with an Illinois consumer bankruptcy attorney.  Contact the Emerson Law Firm today.
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