When someone incurs debt, it is very common to have a co-signor, or co-debtor, on that loan. If the person paying the loan defaults, the creditor can seek the balance from the primary debtor or the co-debtor. If one of the two seeks debt relief in bankruptcy, what happens to the other debtor?
The answer primarily depends on the type of case the debtor filed. In general, if someone files for Chapter 7 bankruptcy, the co-debtor is not protected. The filer’s dischargeable debts are wiped out and they are no longer liable for those debts. However, the creditor will be able to collect from the co-debtor. However, if that person files for Chapter 13 relief, the protection of the automatic stay is extended to the co-debtor for most debts.
If it is a consumer debt, the co-debtor is protected for at least as long as the primary debtor stays in the plan. Completion of the plan will usually absolve both the debtor and the co-debtor of the debt if the debt was paid through the plan. Again, Chapter 13, co-debtor protection applies to consumer debts. The question of when a co-debtor is protected is one that should be addressed in a consultation with an experienced attorney.
It should also be noted that if a person seeks debt relief, it does not leave the co-debtor without options. For example, if two people co-sign on an automobile, the payments are current, and one of the debtors files for bankruptcy, the non-filer can usually continue to make payments and keep the vehicle. By abandoning the vehicle to the co-debtor, it allows the co-debtor to maintain payments as if the case was never filed. This is, of course, just one possibility that can be addressed when you meet with an attorney. There are many possibilities when a person seeks debt relief and these sometimes affect other people.
There is no person to better assist you getting the best relief possible than an experienced bankruptcy attorney. Our staff at any of our locations is ready to do just that. If you need financial help, please contact our office nearest to you to set up a free private and confidential consultation visit with one of our licensed attorneys.