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What Happens to Co-Signed Loans in Bankruptcy?


Co-signed loans and credit lines are a common part of the overall debt burden of those faced with bankruptcy. Banks and credit card companies often require co-signers to enable you to obtain loans and credit cards. You should make every effort to avoid this; however, sometimes you have no choice. When considering your options for debt relief in the Chicago area, it is important that you and your co-signer both understand what happens to a co-signed loan in bankruptcy.


Co-Signed Loans Cannot Be Discharged

Chapter 7 bankruptcy is a process that eliminates most types of consumer debt. However, Chapter 7 provides no protection to co-signers. Only individuals or married people can have their debts discharged in Chapter 7. The likely result of a Chapter 7 filing is that the creditor will pursue the co-signer and demand that he or she pays.


Co-Signed Debt Can Be Reorganized

If you file Chapter 13 bankruptcy, however, your co-signed loan can be rolled in with your other debts and become part of your repayment plan. The repayment period lasts between three and five years, depending on your ability to pay, and during that period creditors are not allowed to collect on any debts that are part of the plan.
You have a right to protect your co-signers for consumer debts in a Chapter 13 proceeding, if you choose to do so. In order for the co-signer to be protected, you must be willing and able to pay that debt in full through the Chapter 13 plan. A Chapter 13 plan can be designed, with the help of your lawyer, to force the creditor to accept terms that will shield your co-signer. As long as you are making your Chapter 13 payments, the co-signer will be protected and the creditor will be unable to contact her or him.


Discuss Options With a Bankruptcy Lawyer in Illinois

Every situation is unique, so it is important that you get advice from a trusted attorney when thinking about bankruptcy. At Edwin L Feld & Associates, our experienced Chicago bankruptcy lawyers can help you understand the big picture, and how co-signed debt fits into that picture. We have practiced exclusively in the field of bankruptcy law since 1984, and we have helped thousands of people in Illinois get the debt relief they need. We are ready to help you, too.


For Answers to More Frequently Asked Bankruptcy Questions in Chicago

With eight office locations in the Greater Chicagoland area, we are available to answer your questions and give you the advice you are looking for. To arrange a free consultation with a lawyer, please call 888-645-4357 or send us an email.