When you secure a loan with a co-signer, their signature offers an extra safeguard for the lender, a way to recoup the money owed should you become unable to repay it. But what happens to a co-signed loan if you file for bankruptcy? Does bankruptcy protection extend to your co-signer? For anyone with a co-signed loan who is exploring bankruptcy, these are important questions. Below, attorney Gilbert P. Kaback, Attorney at Law, in Colchester, CT, provides answers, illuminating the impact a bankruptcy filing will have on a co-signed loan.

Bankruptcy Laws Protect Only You

Once you file for bankruptcy, the courts will issue an automatic stay on all collection action currently in process against you. While this temporarily lets you off the hook for any money owed and stops creditor harassment, the stay does not cover any co-signers on the loan. Bankruptcy laws are set up to protect the filer, so, if there is another name on an existing loan, that person will then have to assume responsibility for the debt.

Possible Solutions for Co-Signed Loans in Bankruptcy

If you are filing for bankruptcy and have a co-signed loan, you still have some options that are worth pursuing. First, you could choose to file Chapter 13 bankruptcy, which does not eliminate your debt, but rather restructures it into a long-term payment plan; you simply add your co-signed loan to your Chapter 13 payments. For those who would benefit more from Chapter 7 bankruptcy, in which most unsecured debt is eliminated, you can proceed and keep your co-signed loan out of the bankruptcy by reaffirming it; the debt won't be discharged like your other debts, and you can continue to repay it. Another option would be to pay the debt off now, thereby removing it entirely from the bankruptcy action and satisfying the terms that both you and your co-signer agreed to.

A bankruptcy attorney can walk you through potential solutions and help you find the one that makes the most sense for you and your situation. Attorney Kaback has more than 20 years' experience representing bankruptcy clients throughout the Colchester area. Call (860) 537-0874 or visit his firm online to make an appointment with a bankruptcy attorney today.