What Happens With Co-Signed Debt in Chapter 13?

Many debtors hope to file Chapter 7 bankruptcy rather than Chapter 13 because most or all consumer debts can be discharged in just a few months with a Chapter 7. However, co-signers are not protected in a Chapter 7 bankruptcy discharge. A debt discharge applies only to the person or couple who files bankruptcy. It does not extend to any other person whose name may be on a loan. Creditors will most likely pursue co-signers after a Chapter 7 bankruptcy and demand repayment.

Debt Reorganization Includes Co-Signed Debts

In a Chapter 13 bankruptcy, however, debts are reorganized and put into a repayment plan that last for three to five years. During that time, creditors are not allowed to collect on debts included in the plan. A bankruptcy trustee collects one payment each month and pays prescribed portions to each creditor.

Because a co-signer is protected from collection attempts by creditors during a Chapter 13 bankruptcy, it may be the best type of bankruptcy for a debtor. There may be very large co-signed loans that would be unmanageable or irreparably harm trusting relationships if they were included in a Chapter 7 bankruptcy. These debts can also be treated as a special class in a Chapter 13 bankruptcy and be paid ahead of other creditors to protect the co-signer.

Discuss Your Unique Situation With an Illinois Bankruptcy Lawyer

No sweeping advice such as statements made on this Web page will necessarily apply in all individual circumstances. For this reason, you should bring your concerns to the attention of a bankruptcy attorney in a personalized consultation.

Only three lawyers in Chicago are certified in consumer bankruptcy by the American Board of Certification*. Two are partners at Ledford, Wu & Borges, LLC.

What About Debt Troubles and Co-Signed Loans? Contact an Experienced Chicago Chapter 13 Bankruptcy Lawyer

Co-signed loans should be handled with care as you prepare to file bankruptcy. Contact us today to discuss your unique circumstances and the best debt relief solutions for you.