What is a cosigner?  A cosigner is usually a friend or family member who signs a legal document or contract and promises to pay your loan in the event you are unable.  When a consigner signs a contract, this individual becomes legally liable for the debt.  According to bankruptcy laws, the lender/creditor views the cosigner as a “codebtor.”

Whether you are the cosigner of the debt, or a debtor intending to file for bankruptcy protection, know that a bankruptcy filing ultimately affects both parties.  In a Chapter 7 filing, eligible debts are discharged and the debtor is protected from creditors by the bankruptcy filing.  Unfortunately, your cosigner is not afforded the same protection.  Unless the Debtor agrees to pay off the debt, Creditors can still demand that the cosigner pay off this existing debt.  In addition, any late payments or delinquencies will have a negative impact on the cosigner’s credit.

Unlike Chapter 7 cases, Chapter 13 bankruptcy provides protection for cosigners of consumer debts.  The automatic stay (protection granted to a debtor upon filing for bankruptcy) protects the debtor and the cosigner.  While the automatic stay is in place, creditors will be prohibited from trying to collect on the co-signed debt from either party.  However, when the debtor’s repayment plan does not pay the co-signed debt in full, the creditor can ask the court to have the automatic stay lifted so that they may come after the cosigner for the difference between what will be paid through the plan and what is owed, or for the entire amount if the debt is not provided for in the plan.

Your cosigner took on a considerable responsibility when they agreed to co-sign on your loan.  Because this can often times be a delicate matter (especially when family and friends are involved), please consider speaking with an experienced bankruptcy attorney to determine the best options for you and your cosigner.