You have decided that it’s time to declare bankruptcy. Perhaps you lost your job, ran into excessive credit card debt, accumulated massive medical bills or something else entirely. No matter why it happened, you’re facing financial challenges that can only be overcome with bankruptcy.
One thing you’re worried about, though, is the fact that you have a co-signer on a loan with you. Say it’s a car loan, and one of your parents or your significant other signed the loan with you. If you declare bankruptcy, can the lenders come after the co-signer?
It depends on the exact situation and the type of bankruptcy you use. Let’s take a look at how it works under Chapter 7 and Chapter 13.
This is liquidation bankruptcy, and a lender can contact a co-signer if you fail to pay, as that co-signer has just as much of an obligation to pay as you do. Since you liquidated the asset — in this case, a car — the lender already got some of their money back. If they did not get back as much as you owed on the car, though, even when you successfully file, they can still try to get the remaining money from the co-signer.
Under Chapter 13, which sets up a repayment plan, you have to make monthly payments. As long as you do so on schedule, paying the correct amount each time, the lender cannot hassle your co-signer or attempt to get the money from them. They have to wait and slowly get it from you through the installments. If you default on the payments or convert your Chapter 13 filing to a Chapter 7 filing, however, that can change things. Then they may be able to approach the co-signer about the outstanding debt on that specific loan.
Considering your options
If you have not filed for bankruptcy yet, you can see why it’s so important to consider all of your options very carefully. Make sure you are well aware of the legal options you have and the steps you need to take.