How Does Bankruptcy Affect Co-Signers on My Debts in Pennsylvania?

When people are in far more debt than they can handle, they may file for bankruptcy and hopefully get a fresh financial start. If that person had other people co-sign for things like loans, those co-signers might be in some financial trouble of their own. If you co-signed for someone and they have filed or will file for bankruptcy, you should speak to an attorney about how to protect yourself, as you could be liable for paying the other person’s debts.

If you file for bankruptcy, co-signers might be on the hook for your unpaid debts. It all depends on which bankruptcy chapter you choose when you file. Chapter 7 generally does not offer much protection for co-signers, but Chapter 13 may shield co-signers from liability for debts, at least to a certain degree. Talk to a lawyer about how you can protect co-signers from the financial backlash of your bankruptcy case.

Get a free, private assessment of your case when you call Young, Marr, Mallis & Associates at (215) 701-6519 and talk to our Pennsylvania bankruptcy attorneys.

What Happens to Co-Signers if I File for Bankruptcy in Pennsylvania?

Not everyone can secure a loan or rent an apartment based on their credit. People with a rocky credit history or young people with minimal credit history might need a co-signer. The co-signer is another person, often with better credit, who co-signs for the loan, apartment, or other debts. If you cannot make payments on your loan or stop paying rent, creditors may go after the co-signer for payment. If you file for bankruptcy, your co-signer might be liable for payment, depending on how you file.

Bankruptcy can be a helpful solution for those facing insurmountable debt, but the benefits of bankruptcy might not cover everyone who signed for the loan. Co-signers might be offered few protections, and they might suddenly be responsible for paying your debts. When debts are discharged, only your liability to pay is removed. A discharge of debt does not affect the co-signers liability, depending on which bankruptcy chapter you file under.

If you believe filing for bankruptcy is necessary, talk to our Philadelphia bankruptcy lawyers about how to file and protect co-signers. Co-signers are often friends or family members, and protecting them from your financial pitfalls might be of significant interest.

How Co-Signers Can Protect Themselves if Someone Files for Bankruptcy in Pennsylvania

Your attorney can help you determine the best way to file for bankruptcy to protect co-signers. Remember, there are multiple bankruptcy chapters, and some offer better protections than others. For example, Chapter 13 bankruptcy comes with certain advantages for co-signers that you should consider.

According to 11 U.S.C. § 1301(a), after a bankruptcy court issues an order of relief under Chapter 13, creditors may not commence a civil action against a co-debtor or co-signer to collect any part of the debt unless certain circumstances are present. Creditors may only take action against a co-signer if they become liable for the debt in the normal course of their business or if the case is closed, dismissed, or converted to Chapter 7 or 11 bankruptcy.

Alternatively, under Chapter 7, there are no protections for co-signers. The automatic stay that normally shields debtors from legal action from creditors does not extend to co-signers. Creditors can go after them for payment while your bankruptcy case is pending. If your co-signer is a family member or close friend, you might want to consider the potential legal consequences your bankruptcy case might have on them.

If the bankruptcy option you select offers little protection for co-signers, you might want to consider other ways of paying back the debt. For example, suppose a close friend co-signed on your mortgage, but you defaulted and are facing foreclosure. Bankruptcy may help you here, but you do not want to put your friend at financial risk. If there is a way to liquidate other assets so you can pay your mortgage and avoid bankruptcy, you should consider it.

How Bankruptcy Can Affect a Co-Signer’s Credit in Pennsylvania

When a person files for bankruptcy, their credit may take a significant hit. However, a co-signer’s credit will not be impacted by the bankruptcy filing, at least not directly. Depending on whether the co-singer is shielded from liability or not may determine how their overall credit is impacted.

After someone files for bankruptcy, the court may discharge their debt, and they will no longer be liable for payment. The same does not go for co-signers. A co-signer may still be liable for payment, and creditors may go after them for payment. If a co-signer cannot or chooses not to pay these debts, their credit may drop. Wrose still, they might be unable to afford the debts and have to file for bankruptcy themselves.

Can a Co-Signer Sue the Person They Co-Signed for in Pennsylvania?

If you co-signed for someone and ended up saddled with their debts because they filed for bankruptcy, you should speak to an attorney about possibly taking legal action against the other person. A lawsuit might be especially effective if the other person has the money to pay their debt but refuses to do so, thus leaving you with their financial burden.

If you have reason to believe that the person you co-signed for can pay but refuses to do so, you should talk to a lawyer about suing them. If you end up paying the debt because the debtor refuses to do so, you may sue them for the money you lost. Even if you do not sue them, you may bring up their financial situation to the bankruptcy court if they file for bankruptcy. Bankruptcy is only available for those with little financial resources to pay debts. Those with adequate financial resources will be quickly turned away.

This kind of situation might arise when a debtor misled a friend or family member into co-signing a loan. Perhaps your “friend” never intended to pay the debt. Now, they have whatever they used to loan to purchase, and you are left with the bill.

Speak to Our Pennsylvania Bankruptcy Lawyers for Support

Get a free, private assessment of your case when you call Young, Marr, Mallis & Associates at (215) 701-6519 and talk to our Northeast Philadelphia bankruptcy attorneys.