Are you thinking about filing for bankruptcy but are worried about how it may affect the cosigner of one or more of your debts? Do you want to get financial relief, but not at the expense of someone you care about?

While this is a legitimate concern, there can be a way for you to get a financial fresh start without hurting a cosigner. The Chapter 13 co-debtor stay can protect your cosigner’s interests while you gain financial relief.

What is the Chapter 13 Co-Debtor Stay?

Typically, when a debtor defaults on a cosigned loan, the cosigner holds responsibility for full repayment to the creditor.  This is often the very reason creditors seek to obtain a cosigner on their financial products.  They want another pocket to reach into in the event the primary borrower proves to be unable to repay the loan.  The impact a bankruptcy filing may have on your cosigner depends on the type of debt they share and which type of bankruptcy is filed. In a Chapter 13 bankruptcy, a cosigner could receive protection against the collection of the debt through the co-debtor stay.

The Chapter  13 co-debtor stay is related to the automatic stay that goes into effect at the start of bankruptcy. The automatic stay prohibits the collection of a bankruptcy filer’s debt for the duration of their bankruptcy. While this protects the person filing bankruptcy from the collection, a creditor could pursue a cosigner for payment. But, if the bankruptcy filer files for Chapter 13 bankruptcy and qualifies for the co-debtor stay, it will prohibit the creditor from collecting against the codebtor during the bankruptcy.

Qualifying for the Co-Debtor Stay

To qualify for the chapter 13 codebtor stay, the following must be proven:

  • The cosigned debt must be a consumer debt, not a business debt.
  • The bankruptcy filer must be the primary debtor of the debt.
  • The cosigner is an individual.
  • The Chapter 13 payment plan must show that the co-signed debt will be paid in full by the end of the bankruptcy.

If these requirements are proven, then the cosigner will be protected from a collection of the debt during bankruptcy. Once the bankruptcy is completed, the debt should be paid in full and no longer a worry for the debtor or cosigner.

Getting Help Protecting Your Cosigner

If you are struggling financially and are thinking about filing bankruptcy, don’t let the fear of harming a cosigner stop you. Our experienced bankruptcy attorneys can evaluate your financial situation and try to find the best way to help you and your cosigner. Contact us today for a free evaluation and let us help you get a financial fresh start.