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What Happens To Your Co-Debtor When You File Bankruptcy?

30 March 2015 by Richard Ramirez

When you file for bankruptcy, it can possibly impact more than you. If any of your debts have a co-debtor, he or she could be on the hook for your outstanding debts once the bankruptcy is cleared. What happens to your co-debtor during and after the bankruptcy depends on which type of filing you choose.

Chapter 7

Once a Chapter 7 bankruptcy filing is completed, most or all of your debts are discharged. At that point, you are not legally liable for the debts any longer. However, your co-debtor is.

Even though you have received a break on the debt, the law still allows loan companies to go after your co-debtor since he or she did not file for bankruptcy, too.

For instance, if your mother co-signed for a car for you and you filed for bankruptcy, your mother would still be responsible for paying off the car. If not, the car loan lender could take legal action, such as suing, against your mother.

When filing for Chapter 7, you have to disclose to the bankruptcy court any co-debtors you have. The court will notify the co-debtors that you filed for bankruptcy.

Although you are not legally obligated to, it could be a sign of good faith to your co-debtor to pay off the debt.

Chapter 13

In a Chapter 13 bankruptcy filing, the co-debtor would still be liable for the debt once the filing is complete. However, there is a difference in what happens to the co-debtor while the bankruptcy is going on.

During a Chapter 7, there is nothing that keeps a creditor from going after the co-debtor while you are waiting for your bankruptcy to complete. In a Chapter 13 filing though, the co-debtor is temporarily protected by a co-debtor stay.

The co-debtor stay will remain in place until the bankruptcy is completed or the creditor requests that it is lifted.

Since part of filing for Chapter 13 is repaying your debts through a court-approved plan, your creditors might not go after your co-debtor.

In the event that the creditor does request that the stay is ended, the creditor has to prove that the co-debtor was the beneficiary of the debt instead of you. For instance, if your mother co-signed for a car loan, but she had possession of the car, she was the primary beneficiary of the debt.

If you have co-debtors, be sure to cover this concern with your bankruptcy lawyer, like Donna C Crooks Atty At Law. He or she can help you find the best possible way to handle the situation and hopefully keep your co-debtor from financial harm.

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