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An attorney explains filing for bankruptcy with a co-signer on the loan

bankruptcy attorneysYou needed to take out a loan, but your credit was not good enough to do so on your own. Perhaps you’ve asked a friend, family member or business associate to co-sign for the loan.

If you’ve gone through this experience, you may be wondering how filing for bankruptcy will impact you and the co-signer. The short answer is that filing for bankruptcy means the third-party co-signer is on the hook to pay off the debt. As a borrower, you have options to consider that may minimize the impact on the person who helped you.

How a bankruptcy filing by the main borrower impacts the co-signer

According to a Debt.com article, the debt collector can pursue the outstanding balance from your co-signer if you’ve filed for personal bankruptcy.  If you want to protect the co-signer from being hounded by the debt collector, you will have to pay off the loan in full.

Debt.com recommends filing for Chapter 13 bankruptcy if you have a co-signer. Chapter 13 allows the filer to create a repayment plan. By taking this path, the borrower AND the co-signer will get an “automatic stay” on the debt. This means the creditor and collector cannot legally pursue debt collection while the borrower goes through the process of filing for bankruptcy.

Keep in mind that if you’re filing for Chapter 13 bankruptcy and want to protect your co-signer, you will need to agree to pay off the debt in full as part of the repayment plan structuring. In fact, you will need to state your intention to pay off the debt as part of the repayment plan. If you don’t include this in the plan, the creditor or collector can go after your co-signer for the balance.

If you decide to file for Chapter 7 bankruptcy (straight bankruptcy), your co-signer will not receive an automatic stay. A creditor or collector will seek the outstanding balance from the co-signer. If you are considering this move, you should speak with the co-signer. You can protect him or her by paying off the debt in full.

How a bankruptcy filing by the co-signer will impact the main borrower

We’ve covered the impact of a bankruptcy filing on a co-signer. What happens if the co-signer files for bankruptcy? A Credit.com article describes a scenario in which a borrower’s credit was hurt after her father, who cosigned on a loan, filed for bankruptcy.

Credit.com recommends monitoring your credit if the co-signer files for bankruptcy. If the bankruptcy filing by the co-signer appears, you can formally ask to have it removed. Simply file a dispute with the credit bureau.

Why you need a bankruptcy attorney

It can be difficult knowing which option is best when considering filing for bankruptcy. With a co-signer on a loan, your decision will have an impact on that person’s life.

You want to make sure your bankruptcy decision is best for you, but you likely want to minimize the impact on the friend, family member or business associate who helped you get the loan.

That’s why it’s important to contact an experienced bankruptcy attorney in South Carolina. Talk to us today at Matthews & Megna, LLC. Discover how we can make a meaningful difference in your life.

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