If you are planning on filing for bankruptcy, you need to consider how this will impact your cosigners. You will need to take certain steps to protect cosigners in bankruptcy in Ohio, as this can also have repercussions for their finances.
Do you want to learn more about Chapter 13 cosigner protection or how cosigners are impacted by Chapter 7 bankruptcy? If so, check out this article, where we will be discussing how you can protect a cosigner during bankruptcy in Ohio and exactly how this could impact their financial situation.
What Happens to Cosigned Debt in Bankruptcy
Before we discuss how to protect a cosigner in bankruptcy in Ohio, you need to understand what a cosigner actually is. This is when you have taken on debt and have had somebody cosign with you, which would make them the main borrower. By cosigning something like a loan, the cosigner will be responsible for the debt if you are unable to make the monthly payments.
Because of this, cosigned debt and bankruptcy can be quite complex, and you need to navigate the situation very carefully. After all, bankruptcy does have an impact on cosigners since they are legally responsible for the debt.
Here are some examples of how filing for bankruptcy can negatively impact cosigners:
- Credit: Filing for bankruptcy can negatively impact your cosigner’s credit score for a variety of reasons, reducing their chances of being able to secure credit later on. This is because bankruptcy filing, late payments, and discharged debt will all be reflected on their credit report as well as yours.
- Loan repayment: Depending on the circumstances, cosigners may end up being responsible for making monthly loan payments. If they are not financially able to do so, this can result in further damage to their credit score.
- Debt liability: Because cosigners are taking on responsibility for any debt, this may make them liable for the remaining debt even when you file for bankruptcy. For instance, if you have filed for bankruptcy, your cosigner may end up becoming solely liable for any remaining debt.
How Chapter 13 Impacts Cosigners
The good news is that if you are filing for bankruptcy in Ohio, different types of bankruptcy provide different protections for cosigners. For instance, Chapter 13 is considered to be the best option as it will extend protection to any cosigners on your debt. This will protect them from any collection action that could result in them being held liable for outstanding debt.
The Chapter 13 protection is called the codebtor stay, which will remain in place until your bankruptcy case is closed. However, there are some requirements to qualify for the codebtor stay, including:
- The cosigner has to be an individual person.
- The cosigner cannot cosign for their spouse’s debt that is linked to a business.
- The cosigned debt must be consumer debt.
In addition to these requirements for the codebtor stay, you must also qualify for Chapter 13 bankruptcy. If you don’t meet the qualifications, you would have to file for Chapter 7.
If you aren’t sure whether or not you qualify for the codebtor stay or Chapter 13 bankruptcy, you need to hire a bankruptcy lawyer. A lawyer will have experience with Ohio bankruptcy laws and can help you determine the best course of action to protect your cosigner.
How Chapter 7 Impacts Cosigners
Now that you know how Chapter 13 impacts cosigners, what about Chapter 7? Unfortunately, Chapter 7 does not offer the same protection for cosigners and can actually put them at risk. This is because when you file for Chapter 7, only your responsibility to pay certain debts is discharged.
If there is anyone else attached to the debt, such as a cosigner, they will still be considered responsible for the debt. So, creditors could pursue collection action against your cosigner even when you are under the protection of Chapter 7.
The only way for your cosigner to get out of their obligation would be if they also filed for bankruptcy.
Strategies to Protect a Cosigner
The good news is that there are certain steps you can take to better protect a cosigner if you are moving forward with filing for bankruptcy in Ohio. Here are some examples of how you can go about doing this so that they do not become liable for your debt:
- Reformation agreement: If you file for Chapter 7, you can sign a reaffirmation agreement, which legally binds you to continue making payments on your debt, even after filing for bankruptcy. This will help to eliminate your cosigner’s responsibility.
- Chapter 13 repayment: The best way to protect cosigners during bankruptcy is to file for Chapter 13, which extends protection from creditors to any cosigners. This bankruptcy option creates a repayment plan allowing you to pay off your own debt so that it is not the responsibility of your cosigners.
- Refinancing: Depending on the type of debt, you may have the option of refinancing, which could help you transfer responsibility, releasing your cosigner from being held liable.
FAQ Section
Will my cosigner know I filed for bankruptcy?
Yes, when you file for bankruptcy, you are legally obligated to provide cosigners in the paperwork, which will result in them being given notice when the paperwork goes through.
Can creditors sue my cosigner after I file?
Yes, if you file for Chapter 7, creditors can demand full payment from your cosigner. If they are unable to make the full payment, creditors can then take legal action against them.
Does reaffirming the debt protect my cosigner?
Generally speaking, signing a reaffirming agreement should protect your cosigner, as this legally binds you to paying off the debt, removing them as an additional borrower.
Hire a Bankruptcy Attorney in Ohio
If you are planning on filing for bankruptcy, you need to know how to protect a cosigner in bankruptcy in Ohio so that they are not negatively impacted. Richard P. Arthur, Attorney at Law, has extensive experience handling bankruptcy cases for Ohio residents and can help you move forward in the best way possible. To proceed with your bankruptcy case, contact us today at 937-254-3738 for a free consultation.