If you’re considering bankruptcy and have debts with a cosigner, it’s natural to worry about how your filing might affect someone else’s financial well-being. Bankruptcy can offer you relief from overwhelming debt—but it does not automatically protect cosigners. How cosigned debts are handled depends on the type of bankruptcy you file and the nature of the debt.
Understanding these differences is essential before moving forward.
What Is a Cosigner?
A cosigner is someone who agrees to be legally responsible for a loan if the primary borrower cannot pay. By cosigning, that person promises the lender they will repay the debt if you don’t—regardless of why payments stop.
Because of this, bankruptcy can have serious consequences for cosigners if it’s not planned carefully.
What Happens to Cosigners in Chapter 7 Bankruptcy?
In a Chapter 7 bankruptcy, your personal liability for most unsecured debts is eliminated once you receive a discharge. However, that discharge applies only to you.
Even if your obligation is wiped out, the creditor can still:
- Demand full payment from the cosigner
- Report late payments on the cosigner’s credit
- Take collection actions against the cosigner
Chapter 7 does not release a cosigner from their legal duty to repay the debt.
In some cases, people choose to continue paying a cosigned debt after filing Chapter 7—even though they’re no longer legally required to—specifically to protect the cosigner from financial harm.
What Happens to Cosigners in Chapter 13 Bankruptcy?
Chapter 13 offers additional protection through a provision known as the co-debtor stay.
While you are actively making payments under a Chapter 13 repayment plan:
- Creditors are generally prohibited from collecting from cosigners
- This protection applies to most consumer debts, such as personal loans or credit cards
- The stay remains in place as long as your case is active and payments are current
However, this protection is not permanent. The co-debtor stay may end if:
- The bankruptcy case is dismissed
- The plan does not fully repay the debt
- The creditor obtains court permission to proceed
If the debt is not paid in full through the plan, the creditor may still pursue the cosigner once the case ends.
Planning Ahead to Protect a Cosigner
If you have cosigned debts, it’s important to plan carefully before filing. In some cases, a bankruptcy attorney may recommend:
- Communicating with cosigners ahead of time
- Reaffirming certain debts
- Restructuring loan terms
- Including additional payments in a Chapter 13 plan
These strategies can help reduce the risk of damage to a cosigner’s credit or financial standing.
Think Beyond Your Own Fresh Start
Bankruptcy can provide powerful relief and a fresh financial start—but it’s important to consider how it affects others who have legally committed to your debts. Every situation is different, and the right approach depends on your goals and the type of bankruptcy you’re considering.
Talk to an Experienced Bankruptcy Attorney
If you’re thinking about filing for bankruptcy and have concerns about cosigners, getting legal guidance early can make all the difference.
If you have any questions about the topic discussed in this article, or any bankruptcy matter, please give us a call at Bononi & Company in Greensburg, PA 724-832-2499.