When a person has no credit history or a poor credit history, it can be extremely challenging to obtain a loan. Creditors will sometimes extend a loan to such a person if they can find someone who is willing to attest for them and assume responsibility for the debt if the initial borrower is unable or unwilling to repay it. This third entity is typically known as a cosigner.
If the primary borrower chooses to file Chapter 7 bankruptcy and is able to successfully discharge the debt, the creditor will turn to the cosigner for the remaining balance of the unpaid debt. When this individual is a friend or family member, the situation can become contentious.
There may be an exception to this rule for those who use a cosigner to attain secured debt, such as a car loan or mortgage. In this situation, a Chapter 7 debtor with sufficient income can reaffirm the debt and continue making payments as if the bankruptcy filing had never occurred. When a debt is reaffirmed, it endures bankruptcy and there is no need for the creditor to pursue a cosigner for the amount owed.
How do I safeguard my cosigner?
When protecting a cosigner is of the uttermost importance, you may wish to file Chapter 13 bankruptcy. If the entire debt is scheduled to be repaid through your chapter 13 payment plan, then you are not discharging it, and a court order confirming the plan will protect your cosigner from creditor action.
Other methods of protecting a cosigner from creditor action when a debt is defaulted include attempting to resolve the debt or negotiate a payment plan outside the court system. It may be worthwhile to propose this course of action, despite the fact that creditors are aware that another person can be promptly pursued for the full amount. In the event that negotiations fail, you can always reconsider your bankruptcy options.
Conclusion
Cosigning on another person's debt is a significant decision that should not be made lightly. If someone has cosigned your debt and you are about to default on that loan, you may want to inform them and see if a solution can be reached with their help. If Chapter 7 bankruptcy is unavoidable and you are eligible for debt discharge, your cosigner will be pursued for the full amount of the unpaid debt. Consider Chapter 13 bankruptcy or an out-of-court settlement to prevent a creditor from pursuing a cosigner.""
" - https://www.affordablecebu.com/
