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How Are Cosigners Treated In Bankruptcy?

Not all debt is taken out by a single person, completely on their own. There are plenty of loans that are made to married couples, or even to a child with their parent as a cosigner. The reason for making loans to individuals and requiring a cosigner could be that the primary applicant does not have enough income to qualify for the loan, or has a credit score that is not within the lending institution’s guidelines. This lending scheme is perfectly acceptable, but when one of the borrowers files bankruptcy and the other does not questions arise as to how the non-filing borrower is treated.

The way a cosigner is treated in bankruptcy might depend on the chapter of bankruptcy filed. Generally speaking in a Chapter 7 there is no protection offered to a cosigner who does not file bankruptcy along with the other borrower. But the rules for a Chapter 13 are different and in those cases a non-filing cosigner is given the same protection as the borrower who files for bankruptcy insofar as the benefit of the automatic stay is concerned. In a Chapter 13 a cosigner who does not also file bankruptcy can expect the following:

  • Once the case is filed the cosigner cannot be called by the lender in an attempt to collect the debt.
  • A creditor cannot sue a cosigner for the debt if a bankruptcy has been filed.

These rules help to protect both the borrower who filed bankruptcy and the cosigner who did not file a case. But, keep in mind the lender does still have the ability to ask the Court to lift the automatic stay so the debt can be collected from the non-bankrupt cosigner. If that happens the lender is within their rights to ask for repayment from the cosigner and if the automatic stay was lifted as to both debtors the creditor can also maintain an action to recover items of personal property. If you have had a loan cosigned by a friend or family member and are considering bankruptcy it is smart to let your cosigner know the possibilities that exist regarding the loan. For help with this task, call our office. We will provide you the information you need.

For more information about how cosigners are treated in bankruptcy, contact us at We will help by coming up with solutions that work for you and your cosigners.

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