Filing for Chapter 13 bankruptcy can significantly impact your finances and, importantly, the financial obligations of your cosigners. Understanding the implications for your cosigner is crucial before taking this step. This article will explore the potential consequences for your cosigner, addressing common questions and concerns.
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a form of debt reorganization, primarily used by individuals with regular income who wish to repay their debts over a period of three to five years. This involves creating a repayment plan that's approved by the bankruptcy court. Creditors are paid according to the plan, and any remaining debts are typically discharged after the plan's successful completion.
What Happens to My Cosigner's Liability?
This is the central question. The answer isn't simple and depends on several factors, including:
- The type of debt: The type of debt you cosigned for matters significantly. A secured debt (like an auto loan or mortgage) functions differently than an unsecured debt (like a credit card).
- The terms of the co-signed agreement: The specific agreement you signed with the lender will outline the responsibilities of both you and your cosigner.
- The status of the debt before bankruptcy filing: Was the debt already in default when the Chapter 13 filing was made?
Secured Debt: With secured debt, the creditor has collateral, like a car or a house. If you default, the creditor can repossess the collateral. In Chapter 13, the creditor can still pursue the collateral, but the bankruptcy filing may alter the repossession process. The court may allow for the creditor to receive the value of the collateral, with that amount applied to your Chapter 13 repayment plan. Your cosigner, however, remains liable for any remaining debt after the collateral is sold, even after the Chapter 13 plan is discharged. The creditor could then pursue the cosigner for the remaining amount.
Unsecured Debt: For unsecured debts, there's no collateral. In Chapter 13, your cosigner's liability remains unchanged until the debt is discharged as part of the plan. The creditor will often focus on recovering the money from the debtor in Chapter 13, but after the plan is complete, if the debt wasn't paid in full the creditor may pursue the cosigner for the remaining balance.
Does Filing Chapter 13 Automatically Release My Cosigner?
No. Filing for Chapter 13 bankruptcy does not automatically release your cosigner from their obligation. Your cosigner remains liable for the debt unless the debt is fully paid through your Chapter 13 plan or the creditor specifically agrees to release them.
Can My Cosigner Be Sued After I File Chapter 13?
While the creditor might prioritize collecting from you during the Chapter 13 process, your cosigner is still legally responsible for the debt. If the Chapter 13 plan fails, or if the debt isn't fully repaid, the creditor can pursue legal action against your cosigner to recover the outstanding balance.
What Should My Cosigner Do If I File Chapter 13?
Your cosigner should:
- Review the co-signing agreement: Understand the specifics of the agreement and their responsibilities.
- Monitor the bankruptcy proceedings: Stay informed about the progress of your Chapter 13 case.
- Consult with a legal professional: Seeking legal advice is essential to protect their financial interests.
- Document all communication: Keep records of all correspondence with the creditor and the bankruptcy court.
Disclaimer: This information is for educational purposes only and should not be considered legal advice. Consulting with a bankruptcy attorney is crucial for understanding the specific implications of filing for Chapter 13 bankruptcy in your situation. The advice provided here is general and doesn't account for specific legal complexities or jurisdictions.
