What Happens if My Cosigner Files For Bankruptcy?

What Happens if your Cosigner Files For Bankruptcy?

            A Bankruptcy discharge (in most cases) will relive the filer from the obligation to pay the underlying debt.    When a co-signer is involved (let’s assume it is a parent), then that co-signer and the filer both must understand the impact.  In short, the answer is easy:    Your bankruptcy has absolutely no impact whatsoever on your non-filing co-signer.    So Mom and Dad are still on the hook.

            In most debts, the co-signers are “jointly and severally liable.”  This simply means that all co-signers are liable to the creditor for the ENTIRE debt. They can then divide amongst themselves who pays what share.   After all, isn’t that why the creditor got Mom and Dad to sign in the first place?  So that they could sue the deeper pockets and not have to worry about having to collect from the less wealthy signers,or signers who might file bankruptcy.

            In Chapter 13, the non-filing co-signer (Mom and Dad) do benefit from a limited co-debtor stay.  As long as you stay in the bankruptcy, then absent court approval the creditor must leave your parents alone as well.     This can be tricky and has exceptions, so please check with an attorney before filing, so they can explain the nuances.   

References: http://www.insb.uscourts.gov/procedure/Filing_Documents_Attorney/Motions_Applications/Relief_from_Stay/Co-Debtor_Stay_1.0.htm