Co-Signers and Chapter 7 Bankruptcy

Are you considering a Chapter 7 bankruptcy filing in order to get a fresh start? If so, it is important to understand how a liquidation bankruptcy can affect any debt you currently have for which you have a co-signer. When a person co-signs a debt, that co-signer becomes liable for the debt just like the party who is obtaining the loan. The purpose of having a co-signer is to be approved for a loan for which you would not otherwise be approved. For example, if you want to buy a new car but cannot get approved for the loan, you might ask a friend or sibling with better credit to co-sign your loan. Or, for instance, you might need a personal loan but cannot obtain one with a reasonable interest rate because of your credit score, and thus you might again ask a friend or family member to co-sign the loan. If that person co-signs the loan, they are essentially agreeing to be liable for the debt if you default on the loan.

What will happen if you have one or more loans with co-signers and you decide to file for Chapter 7 bankruptcy? Our St. Petersburg bankruptcy lawyers can explain.

Co-Signers Are Liable for Debts Regardless of Whether You File for Bankruptcy 

If you file for Chapter 7 bankruptcy, which is a type of liquidation bankruptcy, your case will involve all of your non-exempt assets being liquidated so that you can have all of your eligible debts discharged. The types of debt that typically have co-signers are also the kinds of debts that tend to be eligible for discharge, such as personal loans, credit cards, auto loans, and more. But if you have your co-signed debt discharged, your co-signer will still be liable — and will be the only party that is now liable. To be clear, you can have your co-signed debt discharged, but this will not discharge the debt for your co-signer. Your co-signer will need to begin repaying your debt or else be in default themselves.

In order to avoid putting a co-signer in this situation, you can consider a reaffirmation agreement.

Reaffirmation Agreements in Bankruptcy 

A reaffirmation agreement is an agreement that you can make with the creditor of the co-signed debt. In this agreement, you will agree to continue repaying the debt (i.e., this debt will not be discharged in your bankruptcy case) even though you will be receiving a discharge of other debts.

There are specific rules that govern reaffirmation agreements, and the debtor usually must be able to show that they will be able to repay the creditor according to the terms of the agreement. To find out more about a reaffirmation agreement for co-signed debt, you should get in touch with a Florida bankruptcy attorney who can help.

Contact Our St. Petersburg Personal Bankruptcy Lawyers 

If you are considering a Chapter 7 personal bankruptcy filing, it is important to consider whether you have co-signers associated with your debts and how they can be impacted by your bankruptcy case. As we discussed above, there are options for moving forward with your bankruptcy filing while preventing your co-signer from becoming the party solely liable for your debt. To find out more, or to ask other questions about Chapter 7 bankruptcy for individuals in Southwest Florida, you should get in touch with one of the experienced St. Petersburg bankruptcy attorneys at the Law Offices of Stephen Barszcz. Contact our firm today for assistance with your personal bankruptcy case.

Sources:

law.cornell.edu/uscode/text/11

flsb.uscourts.gov/reaffirmation-agreement#:~:text=A%20reaffirmation%20agreement%20is%20an,or%20take%20back%20its%20collateral