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Jul 19

How does bankruptcy affect co-signers?

A co-signer is someone who is legally committed to fulfilling a loan obligation for someone else if that person cannot fulfill their own obligation. In most cases, a co-signer must have a credit rating high enough that they could get the loan on their own. If you file for bankruptcy, how the loan affects the co-signer will depend on whether you are filing for Chapter 7 or Chapter 13 bankruptcy.

If you receive a discharge through Chapter 7, the responsibility for paying the debt will fall entirely on the co-signer, and creditors can and will take actions to collect from them.

If you file for Chapter 13, you will be required to continue paying on the debt, and your co-signer will be safe, credit rating-wise. However, if you are late on and debt payments, your co-signer’s credit rating will be damaged.

Bankruptcy is a particular problem if you have co-signers who are family members or friends. Co-signers cannot influence any decision you make regarding your bankruptcy, but it might be best to consult them first. If you are in this situation, you should speak with an attorney for the best course of action.