How does a bankruptcy impact a debt if the debt has been co-signed by a 2nd party? In this article, we will explore different scenarios in which a co-signer is involved in debt in the context of bankruptcy. When one person files for bankruptcy, the liability on the debt is essentially removed after the bankruptcy arrives at a discharge. While the bankruptcy eliminates collection activity for the person that has their social security number on the bankruptcy filing, a co-signer is not automatically included as a party that has been discharged of the debt in the bankruptcy. A co-signer on the debt is still liable for the outstanding debt amount and is also eligible to be collected on because of the contracted responsibility of a co-signer whether the main debtor has been discharged from the debt via bankruptcy or not.
The main purpose of a co-signer is to provide an additional resource to collect debt against. A co-signer is not just another point of contact or reference used in the process of financing. A co-signer is a back-up resource to, not only contact in case of a default on payment, but, also, collect on. It is entirely possible and expected for a collection of a debt to extend out to the co-signer when the original debtor does not pay or even if the main debtor discharges the debt in bankruptcy.
So, how can the co-signer be protected from debt collections? Co-signers themselves can get discharged from debt if they file for bankruptcy. A co-signer who files for bankruptcy can be discharged from the debt just like the main debtor could be discharged in a bankruptcy. If the co-signer files for bankruptcy after the liability occurred, the debt gets discharged from the co-signer just like any other debt.
We can illustrate further via fictional scenario. A college student named Mary bought a new car, but, due to a lack of credit history, she required a co-signer and her father has volunteered to co-sign for her entrusting her to keep her part-time job to make her car payments. Soon after, Mary’s father had to file for bankruptcy due to a failed business. Mary decided she was going to stop making payments on her car because she wanted to go to graduate school. The car was repossessed and the balance due was $5000. Mary did not have the money to pay the $5000 balance and she was concerned that her father would be liable since he is a co-signer. In a normal situation, Mary’s father would be liable, but, since Mary’s father filed for bankruptcy after the debt was incurred, Mary’s father is no longer liable for the outstanding debt.
Bankruptcy Law Professionals can guide you through the bankruptcy process and help you manage all of your debt as an original debtor or as a co-signer. BLP has Riverside bankruptcy attorneys and Orange County bankruptcy attorneys to help you in your difficult financial times. We also offer free consultations for all of our clients. Our consultations can be either in-person or by phone with our attorney in Riverside or in Orange County.
Contact us at (855) 257-7671 to schedule your appointment. We can also answer any preliminary questions for you by phone, chat, or email found here on our website.
