Yes. Under the federal bankruptcy laws, you have a right to file for bankruptcy even if you have a cosigner on one or more of your loans. But, some planning is needed to protect your cosigner(s).
In general, a cosigner — sometimes known as a loan guarantor — is a person or entity that agrees to be legally responsible for a debt if the borrower fails to pay. For example, parents often cosign on the first car loan taken out by their children or maybe cosign an apartment lease. If the child fails to pay, the creditor or the landlord can demand payment from the parent.
Likewise, if the cosigned loan is discharged in a Chapter 7 bankruptcy or not fully paid through a Chapter 13 payment plan, then creditors have the legal ability to seek payment from the cosigner. But, as noted, with some planning, there are ways to protect your cosigner even if you need to file for bankruptcy.
For example, if you have one or more cosigners, the choice between filing for Chapter 7 and Chapter 13 can be an important factor in protecting your cosigners. In making these decisions, it is important to consult with experienced bankruptcy lawyers — like the ones at Bankruptcy Law Center in San Diego. This is one of many reasons that debtors should avoid do-it-yourself bankruptcies. Here are a few things that you should know about cosigners and bankruptcies.
First, regardless of whether you receive a full or partial discharge on a debt through your bankruptcy, you always have the choice to continue making payments on a debt. Basically, to fully protect your cosigner(s), the debt needs to be paid in full. Thus, voluntarily agreeing to continue making payments is the easiest method of protecting your cosigners. Filing for bankruptcy will help with this choice, since your bankruptcy will eliminate or lower debt payments making it generally easier to make payments and thereby protect your cosigner(s).
Second, a careful analysis of the loan documents should be conducted to determine if the cosigner is liable for the debt principal only or for everything including the debt principal, late fees, penalties and other charges that the lender is allowed to apply under the loan documents. If the cosigner is liable for only the debt principal, there are bankruptcy mechanisms that might discharge or lower the fees and other charges that have been added to the loan. This is another way making it possible to pay the debt voluntarily in order to protect your cosigner(s).
Third, debtors with cosigned loans can choose to file under Chapter 13. In this respect, Chapter 13 has two advantages. First, cosigners obtain the benefit of the automatic stay which means that creditors cannot try and collect from cosigners or guarantors (at least without getting permission from the court). Second, debtors filing under Chapter 13 are required to prepare and submit a repayment plan. Where there are cosigned loans, an ideal repayment plan would include monthly payments on those loans and fully pay them off over the three-to-five years allowed under Chapter 13. Under this scenario, cosigners are fully protected.
But, even if the repayment plan only pays part of a cosigned loan, filing under Chapter 13 might still help. Monthly payments would be made and the amount owed would be much less when the repayment plan is completed. Plus, overall debts payments are lower. After the repayment plan is completed, the debtor could then choose to continue payments until the debt is fully paid. This does not always succeed since creditors have legal tools that allow them to go after a cosigner during the repayment period (unless full payment is being made). Some creditors can be harsh and unpleasant about collecting on debts owed, but many creditors are willing to wait as long as they are receiving payments.
Contact Our Experienced Bankruptcy Attorneys Today
For more information or if you think it may be time to file for bankruptcy, contact the Bankruptcy Law Center today. We have the experienced bankruptcy attorneys that you need to help evaluate your options. Use our Contact Page or call us at (800) 718-9688 to schedule a consultation.