Essentially, only a Chapter 13 bankruptcy will protect your co-signer. With a Chapter 7 bankruptcy, only the debtor is protected and the co-signer will still be liable for the debt.
How Bankruptcy Affects a Co-Signer
Before filing for bankruptcy you need to make sure which type is appropriate for your situation. At this time it is important to ask if your co-signer would be asked to pay your debt if your file for bankruptcy. The answer to this question would depend on the type of bankruptcy that you file for and the particulars of your bankruptcy plan.
Essentially, only a Chapter 13 bankruptcy will protect your co-signer. With a Chapter 7 bankruptcy, only the debtor is protected and the co-signer will still be liable for the debt. That is to say, with Chapter 7 bankruptcy, the creditors will still have the right to demand that your co-signer pay off the outstanding payments. On the other hand, Chapter 13 bankruptcy is able to give the co-signer increased protection under the right conditions. Under chapter 13 bankruptcy, as long as the bankruptcy plan is active the co-signers will receive a stay. All the same, when the plan closes, the co-signer is once again liable to pay any outstanding payments. The following aspects should stay constant while your file for bankruptcy and in the later processes also. If any one of the following factors is not satisfied at the point of bankruptcy filing or later, then your co-signer will be responsible to pay off your debts. The factors are:
- you file for Chapter 13 bankruptcy. Chapter 7 will not protect your co-signers
the debt of the co-signer has to be a consumer debt, which is to say, a personal debt and not a business one.
the co-signer is not the recipient of any benefits from the debt proceeds.
the accurate bankruptcy plan payments are made in accordance with your bankruptcy.
When filing for bankruptcy, one needs to keep in mind that the conditions mentioned above are legal ones and have to be dealt with in the appropriate manner. It would be advisable to contact a bankruptcy attorney to ensure the protection of your co-signer.
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