Bankruptcy

If I File for Bankruptcy, Will the Cosigner of My Loan Still Have to Pay?

By Cara O'Neill, Attorney
Find out whether your cosigner will get stuck paying your debt after you file for bankruptcy.

In most cases, yes. Someone who co-signs on a loan or credit account agrees to be contractually liable for the debt if you don’t pay it, and the responsibility doesn’t change if you file for bankruptcy. In other words, if you receive a discharge (the order that wipes out qualifying debt) for the debt in a Chapter 7 case, your obligation to pay it will go away while leaving your cosigner’s responsibility in place (unless the cosigner files for bankruptcy, too). The creditor can still pursue the cosigner for payment.

You can protect a cosigner—at least partially—by filing for Chapter 13 bankruptcy. For instance, if the co-signed debt is a car loan, you can pay the entire balance over the course of your three- to five-year repayment plan. Be aware that if it’s another type of debt, protecting a cosigner might not be so easy.

For instance, if it’s a nonpriority, unsecured cosigned debt (personal loans, credit card balances, and the like), paying off the entire cosigned debt could come at a hefty price. Not only are nonpriority, unsecured debts last on the payment priority list (you’ll have to pay higher-ranking debt first), you’re not allowed to favor one debt over another. Each nonpriority, unsecured debt must receive an equal payment percentage. So if you want to pay an entire credit card balance, you must pay all of your other nonpriority, unsecured debt creditors in full in what’s known as a “100% plan.”

Considering that most people count on paying less for nonpriority, unsecured debt, protecting a cosigner can sting (although other Chapter 13 benefits, such as catching up on mortgage arrearages, can be valuable, too). Many people simply don’t make enough money to pay the monthly payment on a 100% plan.

To find out more about protecting a cosigner, you should consult with a local bankruptcy attorney.

Go to the main bankruptcy FAQ page.

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