Filing bankruptcy is always a difficult decision and one that can be complicated by the fact that you have asked someone to co-sign a loan or credit card for you. When you file a Chapter 7 bankruptcy petition or file a Chapter 13 repayment plan, your Marietta bankruptcy attorney should be informed that you have a co-signor or guarantor on any debt. The court will also require you to disclose co-signors on your bankruptcy forms.
How Does the Stay Impact a Co-Signor?
When your Marietta GA bankruptcy attorney files your petition for bankruptcy, all collection activities that the creditor is pursing against you must stop. However, bankruptcy protection extends only to your obligation to repay the debt, not to the obligation of your co-signor who has agreed to be liable for the debt in the event you default. In a GA Chapter 7 bankruptcy filing, the creditor will more than likely seek relief from the co-signor. The rules are slightly different for Chapter 13 bankruptcy, in order to pursue the debt from your co-signor the creditor must show the bankruptcy court that (a) the co-signor gained some benefit from the loan they were co-singing for (b) the creditor will be irreparably harmed if they are unable to collect the funds or (c) there is no allowance in the Chapter 13 plan for the creditor to be paid.
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What About Secured Debts and Bankruptcy?
If your co-signor helped you get a loan for a home or automobile and you surrender the asset in a Chapter 7 bankruptcy filing, they will be responsible for the debt that remains under the original contract. Keep in mind, your filing protects only you from collection activities; it does not protect your co-signor or guarantor. The lender may sell the property after you surrender the asset and any remaining balance will be the responsibility of the co-signor.
What About Unsecured Debts?
In nearly all cases, if you had a co-signor on a personal loan or a credit card that is eliminated in bankruptcy your co-signor will be responsible for that debt. If the loan is partially paid through Chapter 13, and you fail to make any additional payments after Chapter 13 to that creditor, they may seek relief from the co-signor.
Since many debts that require a co-signor are reported to credit bureaus, once you file bankruptcy a notation will appear on both your credit report and the co-signors credit report that the debt is part of a bankruptcy petition. This notation will have a negative impact on their credit.
When you ask someone to co-sign a loan, it is never with the intention that you will be unable to make the payments. However, job losses and illnesses can often mean you have no option but to work with a Marietta bankruptcy attorney for relief from your debt. Do not let this action catch a co-signor off guard, let them know of your intentions.
Some debtors may find that Chapter 13 is a better option when filing bankruptcy if they have assets or unsecured debts that have a co-signor on them. However, keep in mind, that consumer debt is not considered “priority” debt so even under Chapter 13 in some cases, your creditor may not receive all that is owed to them. When you have secure debt such as a home or car with a co-signor, you may want to consider reaffirming the debt and continue making those payments if at all possible.
A Marietta bankruptcy attorney can help you make a decision about what chapter of bankruptcy offers both you and your co-signors the most protection. We understand that everyone’s circumstances are different and that each case must be treated individually. Contact Roger Ghai, a bankruptcy attorney in Marietta at the Law Offices of Roger Ghai at (770) 792-1000 to discuss your individual circumstances.