How Your Chapter 7 Bankruptcy Affects Your Cosigner
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
Your cosigner is liable for your debt even if you file a Chapter 7 bankruptcy.
A Chapter 7 Bankruptcy erases most unsecured debts, such as credit cards. It permits you to keep secured debts, such as your home mortgage and your car loan, if you affirm the debt, which means if you agree to repay the loans after your bankruptcy. And if someone cosigned your loans, then your cosigner will still be liable for the debt, even if you file bankruptcy.
When your chapter 7 bankruptcy ends
At the end of your Chapter 7 bankruptcy, the court discharges your debts. This applies to all of your unsecured debts, like medical bills, personal loans, credit cards, as well as some income taxes and utilities. The discharge usually doesn't apply to student loans or to other income taxes. And some obligations are never discharged in bankruptcy. These include child support, alimony, and criminal fines.
When the court discharges your debts, you are no longer legally liable to pay them. And your creditors cannot try to collect them from you.
The bankruptcy ends only your obligation to pay
While you have no further obligation to pay the debt, the debt is not gone. Your cosigner is still liable for the full amount of the debt unless your cosigner also filed for bankruptcy with you.
You must name your cosigners when you file
When you file bankruptcy, the paperwork requires that you list all of your co-debtors or co-borrowers, which includes cosigners. The court uses this information to inform your cosigners of your bankruptcy.
Your cosigner is liable for deficiencies on the sale of secured assets
If you have a cosigner on a car loan and you file Chapter 7 bankruptcy, your cosigner is still liable for the debt. If you decide to keep the car and keep paying on the loan, nothing changes. But if you surrender the car as part of your bankruptcy, your cosigner is still liable for any debt not covered by the collateral.
Let's say you surrender your car and the lender sells it for $7000. But the amount left on the loan is $10,000. Your obligation has ended because of your Chapter 7 bankruptcy. This means your cosigner must pay the $3,000 difference because he cosigned on the car loan.
If you have any questions about cosigners on debts, you should seek the advice of a professional financial and bankruptcy lawyer. You're invited to call me at 312-969-0730.