Can You Protect A Co-Signer In Bankruptcy?

A common question when talking about possible bankruptcy proceedings is whether or not a co-signer will still be liable for a debt should the primary debt holder be forced to declare bankruptcy. The answer is neither a solid yes or no. The truth is the answer lies somewhere in the middle.

First of all, you should always contact a qualified bankruptcy attorney for advice before starting any process involving bankruptcy. If you do decide to go bankrupt and you choose to take the path of a Chapter 13 bankruptcy allowing for a court authorized re-payment plan then essentially the answer is yes, the co-signer is protected from liability. This only remains true provided that you remain in good standing with the repayment plan that has been negotiated by your bankruptcy attorney in court.

However, after you have received a discharge if there is still outstanding debt, the creditors may very well be able to go after the co-signer for any outstanding amount. Also, if you decide to enter into a Chapter 7 bankruptcy then unfortunately the co-signer will definitely be liable and creditors will be able to demand payment of any outstanding amounts from the co-signer themselves.

So, the answer lies kind of in the middle. Chapter 13 and the co-signer receive a little bit of protection as long as the plan is upheld, and in Chapter 7 the co-signer has little to no protection from the creditors. Again, be absolutely certain to contact an attorney who specializes in and understands bankruptcy laws before making any decisions.