How Does a Bankruptcy Filing Affect a Co-Signer on a Debt?

Often, when you’re having financial struggles, you can obtain some credit and secure some needed items by getting a friend or family member to co-sign for a debt. But what are the consequences for the co-signer if your financial situation doesn’t improve and you decide to file for bankruptcy protection?

A bankruptcy filing generally has no impact on the co-signer…that person’s obligations under the agreement are still in effect. The person who filed for bankruptcy will enjoy the protections of the automatic stay (preventing the creditor from calling, writing or otherwise attempting to collect the debt), that protection will not extend to the co-signer.

Protecting the Rights of a Co-Signer after a Bankruptcy Filing

In most instances, you don’t want the co-signer, as a friend or family member, to be saddled with your debts. There are ways that you can protect a co-signer when you file a bankruptcy petition:

• You can reaffirm the debt with the co-signer—Reaffirmation of a debt means that you make a promise to repay the debt after the bankruptcy is final
• You can provide for payment of the debt in your Chapter 13 Plan

In a Chapter 13 bankruptcy filing, there’s a protection similar to the automatic stay, known as the “co-debtor” stay. This protects any co-signers during the three-to-five-year period of the Chapter 13 reorganization provided that co-signor is an individual and the debt is a consumer debt. A creditor may, however, seek to have this stay removed, under limited circumstances:

• If there’s a determination that it was actually the co-signer who benefitted from the debt
• If the creditor can show “irreparable harm” if the stay is not lifted

Contact Attorney Howard N. Sobel

At the office of Howard N. Sobel, we provide comprehensive bankruptcycounsel to individuals throughout the state of New Jersey. Contact our office online or call us at 856-424-6400. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.