Bankruptcy definitely has a lot of effects, and while some are good, others might not be so great. One of the questions many people wonder when they are preparing to file for Chapter 7 bankruptcy is how it will affect their cosigners. If you have debts that have cosigners on them, your cosigners will likely be affected if you file for bankruptcy. Here are several important things to know about this:
Cosigners are equally responsible for debt
The whole purpose of a cosigner is to take responsibility for paying the debt that he or she signs a loan for. The lender bases the loan decision on the credit of the cosigner and will expect him or her to pay the debt if the borrower fails to do so. In fact, cosigners are just as responsible for paying the debt as the actual person who borrowed the money. This is one of the reasons debts will not only appear on a borrower's credit report, but they will also appear on a cosigner's credit report. Knowing this will help you understand the effects bankruptcy will have on a cosigner.
Cosigners will get stuck with discharged debts
The main thing you should know is that if you file for bankruptcy and include debts that have a cosigner, the bankruptcy case might discharge the debts from you. This would mean that you are no longer legally responsible to pay the debts, and that the creditors could not legally try to get you to pay the debts. You will be completely off the hook for any debts that are discharged. The problem, however, is that your cosigners will not be off the hook. While the creditors cannot legally come after you for the money, they will still have the ability and legal right to pursue collecting the money from the cosigners, even though the debts were discharged for you. This means that you would leave your cosigner in a predicament if you filed for bankruptcy.
What you could do in this situation
The best thing you could do in this situation is offer to pay the cosigner for the debts that were discharged. While this would still make you responsible for paying them, it would be the right thing to do; otherwise you may leave the cosigner in a situation in which they would have to pay the debts out of their own pockets to protect their credit. You can talk to a bankruptcy lawyer about other options if you have questions or concerns. You can also contact legal professionals like those at the Law Offices of Harry G Lasser for more information.