If you have a cosigner or guarantor for your debt, then you have to be aware of what your filing for bankruptcy would mean for them. While bankruptcy could have adverse consequences for a cosigner, you can take measures to make sure that this does not happen in your case. Learn what these consequences are, and how to avoid them.

First of all, being a cosigner or guarantor means that someone will have the responsibility to pay up your debt if you default on it. Creditors will often demand that you have a guarantor or cosigner if they think you will struggle to make payment. Now at any point, a cosigner can be hounded by a creditor, but creditors usually have to go through you first before seeking to collect from the guarantor. But if you are at the point of bankruptcy, then both a cosigner and a guarantor could be on the hook for your debt.

If you get your debt discharged in bankruptcy, this means that you no longer have to pay them. But a co-debtor still would have to. That being said, depending on the type of bankruptcy you are filing for, you could achieve a measure of protection for a cosigner or guarantor.

Chapter 7 Bankruptcy Protections for Cosigners or Guarantors

For example, in Chapter 7 bankruptcy, the automatic stay (relief from collectors) only applies to the primary borrower, not any co-debtors. So your creditors can go after them. If you want to prevent this from happening, then one thing you can do is reaffirm the debt. What this means is that before you your debt is discharged, you can waive the discharge, that is, keep the responsibility of paying for the debt. Usually this is not a good idea, as after all, one of the main benefits of bankruptcy is that certain debt can be wiped clean from your slate. But if you want to keep your cosigner or guarantor from being on the hook for the debt instead, then reaffirming debt is something you might want to do. In certain cases, you would benefit from that step too.

Then your other option when it comes to protecting someone who signed onto your debt is, well, getting rid of the debt yourself. You can still get your debt discharged, which means creditors will not come after you for the debt, but you can still pay it back yourself, meaning that your cosigner would not have to.

How to Protect a Cosigner or Guarantor in Chapter 13 Bankruptcy

Anyone who has cosigned or guaranteed a debt (a non-business one) will be more shielded in the Chapter 13 bankruptcy process. Usually this is because this bankruptcy is structured so that you pay off a good deal of the debt yourself. In this bankruptcy, your cosigner or guarantor also gets the automatic stay (but theirs is known as a Chapter 13 co-debtor stay). But just as with your automatic stay, creditors have ways to lift a co-debtor stay too. This could be the case in a couple of instances, such as when you are not planning to pay off all your debts, the creditor would undergo irreversible loss if the stay lasts any longer. Of course, your cosigner or guarantor would also be affected if your Chapter 13 bankruptcy case gets dismissed, or if it even turns into a Chapter 7 bankruptcy instead.

If you are a cosigner or guarantor of someone else's debt, or if you have a co-debtor for your debt, then consult an experienced bankruptcy attorney to understand what bankruptcy could mean for both of you, and what you can do about it.