What Happens If a Co-Signer Files Chapter 7 Bankruptcy?

What Happens If a Co-Signer Files Chapter 7?

If you’ve co-signed a loan for someone, or had someone co-sign for you, you may be wondering how bankruptcy could affect your shared financial responsibilities. Specifically, what happens if a co-signer files Chapter 7 bankruptcy? Or what happens to your co-signer if you file?

At The Law Offices of Nicholas J. Del Pizzo, we work with Baltimore residents navigating complex bankruptcy situations, including co-signed debts. Understanding how Chapter 7 Bankruptcy affects both parties can help you protect your credit, finances, and relationships.

What Is a Co-Signer?

A co-signer is someone who agrees to take responsibility for a loan if the primary borrower fails to repay it. Co-signers are commonly used when:

• The primary borrower has a limited or poor credit history

• The lender wants additional assurance that the loan will be repaid

• The loan involves a large amount, like a car loan, student loan, or mortgage

Co-signers don’t receive the benefit of the loan, such as the car or home, but they do share legal responsibility for repayment.

When Does a Creditor Require a Co-Signer?

Lenders typically require a co-signer when the borrower is considered high risk. This is often due to low income, high debt-to-income ratio, or a lack of established credit. By adding a co-signer with better credit or income, the lender reduces its risk.

In Baltimore and across Maryland, co-signing is common among:

• Parents helping their children obtain student loans

• Spouses co-signing on mortgages

• Friends helping each other secure car loans or lines of credit

Co-signing comes with serious legal and financial consequences, especially when bankruptcy enters the picture.

Bankruptcy and Co-Signing

When a Chapter 7 bankruptcy is filed, it triggers an automatic stay that stops most collection efforts. However, this protection only applies to the person filing.

If your co-signer files Chapter 7, they are seeking to discharge their responsibility for the debt. This doesn’t mean the creditor will stop trying to collect. Instead, the creditor may:

• Write off the co-signer’s obligation

• Shift full collection efforts to the other borrower

• Report the co-signer’s discharge on their credit report

• Potentially sue the non-filing party for the full amount

This can affect your credit, increase collection efforts against you, or put your own financial security at risk.

Chapter 7 Bankruptcy Doesn’t Erase a Co-Signer’s Obligation

It is important to know that Chapter 7 bankruptcy discharges the debt for the person filing, but it does not eliminate the debt itself.

If a loan has two co-signers and one files for Chapter 7, the other is still fully responsible for the balance. The lender can and likely will pursue the remaining borrower for payment. This can lead to strained relationships, unexpected financial pressure, and long-term credit damage if not managed proactively.

Will My Co-Signer Be Liable for Debt if I File Bankruptcy?

Yes. Unless you are filing under Chapter 13 Bankruptcy, which includes certain protections for co-signers, your co-signer will still be liable.

If you file Chapter 7 bankruptcy in Maryland and your co-signer doesn’t, the creditor can:

• Demand full payment from the co-signer

• Begin or continue collection activity

• Report missed payments on the co-signer’s credit report

This is why it’s essential to talk to your co-signer and a qualified bankruptcy attorney before filing.

Steps to Protect a Co-Signer If You File for Bankruptcy

If you’re considering filing Chapter 7 and want to protect your co-signer, consider the following options:

1. Reaffirm the Debt

You can voluntarily agree to repay the debt despite the bankruptcy discharge. This protects your co-signer but keeps you personally liable.

2. Pay Off the Debt After Discharge

While you’re not legally obligated, you can choose to repay the debt voluntarily to ease the burden on your co-signer.

3. Convert to Chapter 13

Chapter 13 may allow you to structure a repayment plan that also protects your co-signer from collection efforts.

4. Talk to Your Co-Signer

Open communication is key. Make sure they understand the risks and what steps you’re taking to reduce the impact.

5. Consult an Attorney

Bankruptcy law is complex, and co-signed debts can complicate things. A local Maryland bankruptcy lawyer can help you navigate these decisions and protect both parties.

Contact an Experienced Bankruptcy Lawyer Today

If you or your co-signer are considering Chapter 7 bankruptcy in Maryland, it’s essential to understand the full impact before moving forward. At The Law Offices of Nicholas J. Del Pizzo, we provide personalized, one-on-one legal guidance to help you make informed decisions and protect those closest to you.

Located in Baltimore, we serve clients throughout the region and are available seven days a week to answer your questions and guide you through the process. When you call our office, you speak directly with Nick Del Pizzo, not a paralegal or associate. We will help you understand your options, protect your rights, and build a clear path to financial relief.