What Happens to a Cosigner When You File for Bankruptcy?

Cosigners are responsible for all the same collection activity as the original borrower...

Many people use a cosigner to buy a car, help with a loan, or cover emergency expenses because they don’t qualify for loans or credit themselves. But, what happens when you cosign for someone on a loan and they go bankrupt? Is the cosigner responsible then for the debtors debts?

Cosigners are responsible for all the same collection activity as the original borrower.  As a cosigner, you are putting yourself at risk for all the same collection calls, late payments that change your credit score, and debt which is given to a collection agency. If your borrower files for bankruptcy, the cosigners responsibility will depend on what chapter they file for.

Chapter 13 filing is the best option for a cosigner simply because the automatic stay (see previous blog) will go into effect as soon as the bankruptcy is filed.  Because Chapter 13 is a repayment plan for 3-5 years, as long as the debtor makes his payments, this will not affect the cosigner.

Chapter 7 filing creates a discharge in debt for the borrower, but the cosigner will still be held accountable for that debt.

If you are considering filing for Chapter 7 or Chapter 13 bankruptcy, and a cosigner is involved, your best option is to consult with your bankruptcy attorney before proceeding.