It is important to understand the impact of bankruptcy on cosigners in Ohio if you aren’t the only person listed on your loans. Understanding how cosigners are impacted can help you better prepare and protect them before you proceed with filing for bankruptcy.
Are you wondering how cosigned loans are dealt with in bankruptcy in Ohio? If so, check out this article, where we will be discussing the impact of bankruptcy on cosigners in Ohio.
How Chapter 7 Bankruptcy Affects Cosigners
If you are in debt due to taking out different types of loans, it isn’t uncommon to have cosigners. A cosigner is somebody who signed with you on a loan agreement as a secondary person who takes legal responsibility for the debt. In many cases, a cosigner may be necessary if you do not have the credit history, credit score, or income level that the loan provider requires.
When you file for bankruptcy, anyone who is connected to your debt will be impacted by this. Cosigners will be especially impacted by bankruptcy since they are legally responsible for the debt, just as you are.
If you are filing for Chapter 7 bankruptcy specifically, this can negatively impact your cosigners. Cosigner liability in Chapter 7 can put cosigners at risk of having creditors come after them when you file for bankruptcy. This is due to the fact that the automatic stay protects you from collection efforts, but it doesn’t protect cosigners.
Even if your debt could be discharged in Chapter 7, this does not necessarily mean the same thing for your cosigners.
How Chapter 13 Bankruptcy Affects Cosigners
The two most common types of bankruptcy are Chapter 7 and Chapter 13 bankruptcy. Chapter 13 bankruptcy is an option for higher income individuals, allowing them to start a repayment plan as a way of catching up on their debt.
Generally speaking, Chapter 13 is much kinder to cosigners as it provides a Chapter 13 co-debtor stay that works in combination with the automatic stay. The co-debtor stay is put into effect once you have filed for bankruptcy and protects your cosigners from collection efforts.
Keep in mind that creditors can petition to have co-debtor stay lifted in certain instances, such as:
- The creditor will suffer irreparable financial harm as a result of the co-debtor stay.
- The cosigner directly benefited from the loan.
- The Chapter 13 repayment plan will not pay off the debt in full.
Out of these two types of bankruptcy, it can be more challenging to determine whether or not you qualify for Chapter 13. A bankruptcy attorney in Ohio can help you with this, as well as help you file in a way that provides protection for your cosigners.
Strategies to Protect a Cosigner During Bankruptcy
Cosigned loans in bankruptcy in Ohio will have to go through the same process as any other type of debt. Because of this, cosigners are at risk of having creditors go after them directly to pay off the balance.
However, there are a few strategies you can use to protect your cosigners so that they are in the clear.
Refinancing
One of the best ways to protect a cosigner is to refinance the debt so that the responsibility can be transferred fully to you. If this works with the type of debt you have, this would release your cosigner from all responsibility, as their name would be taken off the debt. You can then proceed with filing for bankruptcy in the hopes of having the debt discharged.
Repayment Plan
If you qualify for Chapter 13 bankruptcy, this is another way of protecting cosigners from collection efforts. Chapter 13 has a co-debtor stay that works like the automatic stay, protecting cosigners from harassment from creditors.
Keep in mind that the Chapter 13 co-debtor stay only continues to protect cosigners if the repayment plan is upheld. If you miss payments, you not only risk having your case dismissed, but you also risk having your creditors go after your cosigners.
Reaffirmation
If you qualify for Chapter 7 bankruptcy, you can sign a reaffirmation agreement as a way of protecting cosigners. A reaffirmation agreement is a legally binding agreement that allows you to promise to continue making payments on your debt even after you have filed for bankruptcy.
However, keep in mind that not all creditors will be happy with a reaffirmation agreement and may still pursue collection efforts.
Also, it is a good idea to hire a bankruptcy lawyer to help you with your case, especially if you are going to sign a reaffirmation agreement. They can help you determine whether or not this is the right option and if it is sustainable for your financial situation.
FAQ Section
Will my cosigner know if I file for bankruptcy?
Not usually, but they may see that the debt reflected on their credit report is flagged as being part of a bankruptcy case. For transparency’s sake, it is usually recommended to tell cosigners before you file for bankruptcy since this could possibly impact them.
Can creditors sue my cosigner after I file?
Yes, creditors can legally sue your cosigner after you file for bankruptcy.
Does Chapter 13 fully protect cosigners?
For the most part, yes. However, you must maintain your Chapter 13 repayment plan agreement. Also, in rare instances, the co-debtor stay may be lifted if a creditor petitions under certain circumstances.
What are reaffirmation agreements, and do they protect cosigners?
A reaffirmation agreement is when you agree to continue making payments on your debt even if you go through with bankruptcy. This acts as a promise your creditor that you will pay off the debt in exchange for them not trying to collect it from your cosigner.
Hire a Bankruptcy Attorney in Ohio
If you had a loved one cosign on a loan with you, you will need to understand how filing for bankruptcy could potentially impact them. Richard P. Arthur, Attorney at Law, has extensive experience handling bankruptcy cases and can help you navigate the complexities of filing for bankruptcy with cosigners on your loans. To proceed with your bankruptcy case, contact us today at 937-254-3738 for a free consultation.