Did Someone Cosign a Loan That You Can No Longer Pay? Learn How to Protect Them
When someone agrees to cosign a debt with you, they are taking a chance on you. They know that you do not have great credit, or enough income to justify being approved for a loan. They believe that you will make the payments as necessary and are willing to put their own credit on the line. When financial does come your way and you are not able to pay the bills, you may feel immense guilt that your cosigner is now on the line.
The good news is that there are things you can do to protect your cosigner. Keep reading to learn more about them. If you have questions, or need a free bankruptcy consultation, call California Bankruptcy Relief at (888) 748-0025 to talk to a bankruptcy attorney.
The Worst-Case Scenario
If you are unable to pay the debt, your standard bankruptcy discharge will get rid of the debt for you but it will not help your cosigner at all. You will be protected by an automatic stay that keeps collectors from bothering you but your cosigner is entirely exposed. This is the situation you are trying to avoid. The good news is that there is an option: Chapter 13 bankruptcy.
What You Need to Know About Chapter 13 Bankruptcy
This is not your standard bankruptcy. It offers unique protections for people who have cosigners. First, the automatic stay applies to cosigners. However, there is one big qualification: The debt must be personal or for a household purpose – not business. For example, if someone cosigned your car loan they would be covered but if they cosigned for a business lease, they would not.
Second, the benefits of the loan that the person cosigned for must have gone to the person who filed bankruptcy. If you cosigned a loan made to a friend, the friend would not be protected by your bankruptcy. The final qualification is that your Chapter 13 plan must include payment in full of the debt. However, you will have a timeline that works for you.
Cosigned Debts Get Further Special Treatment
In most cases, a Chapter 13 bankruptcy treats any unsecured, non-priority debt the same. They are paid with the same percentage throughout the plan. This is not the case with cosigned debts. A debtor can separate a cosigned debt, pay it in full, and still pay little or nothing on other debts.
If you have questions about whether bankruptcy is the right choice for you and your situation, contact California Bankruptcy Relief at (888) 748-0025 to request a free bankruptcy consultation. We can briefly cover your situation and find out what options are likely to be available to you.