If you are considering filing for bankruptcy, you may think that your friend or family member who cosigned a loan for you is legally excused from the loan if your debt is discharged in bankruptcy. Unfortunately, this is not the case.
Many friends and family members cosign loans to help a younger person or a person with financial difficulties obtain a loan. If the person who sought to obtain the loan later files for bankruptcy, the lender or creditor can go after the cosigner for the debt, because bankruptcy only discharges the debts of the bankruptcy filer. The cosigner’s liability is considered separate and distinct.
If you are contemplating filing for bankruptcy but don’t want to leave your cosigner liable for the debt, working with an experienced bankruptcy attorney is in your cosigner’s best interests. The type of bankruptcy you file can make a difference – cosigners are not protected in Chapter 7 bankruptcy proceedings, but they may be if you choose to file a Chapter 13 bankruptcy petition. With the help of a skilled attorney, you may be able to establish a special payment class in your bankruptcy plan to pay back the debts that were cosigned in full, in order to prevent your cosigner from becoming liable to pay the loan.
It is important to know that your bankruptcy filing does not negate the liability of your cosigner on your loan. However, a trusted bankruptcy law firm can help you protect your friend or family member so the person is not burdened with the debt you are seeking to eliminate.