With adult children experiencing more difficulty obtaining a mortgage or qualifying to purchase of a vehicle, family members may decide to cosign or become the guarantor on a loan to help them get started.
Creditors often require a cosigner or guarantor for first time borrowers or borrowers who have poor credit histories. The difference between the two is that the cosigner is equally responsible for the payment whereas a guarantor is liable only if the borrower fails to fulfill their obligation to pay the loan.
Protecting a Cosignor or Gaurantor in a Bankruptcy
If a borrower files for bankruptcy, the bankruptcy discharge may eliminate the borrower’s responsibility to pay outstanding debt, but the cosigners and guarantors may still be on the hook.
Protect a Cosigner or Guarantor from Collection Efforts
Borrowers who relied on the help of a family member who wish to protect a cosigner or guarantor from collection efforts may reaffirm the debt under a chapter 7, meaning they give up the benefit of the discharge and become personally liable for the debt.
It is also possible for the borrower to work with a creditor directly to continue making payments on the debt that a cosigner or guarantor is attached to, however, a creditor may decide to work with a guarantor instead, if they have sufficient assets to pay the debt.
Chapter 13 Cosignor and Guarantor Protections
A Chapter 13 is a repayment plan that allows borrowers to keep more of their assets with an affordable payment plan. A chapter 13 bankruptcy offers more protection to cosigners and guarantors who typically are protected under a stay during the three to five year repayment period.
However, the creditor can request a lift on the automatic stay with regard to cosigners or guarantors if (A) the debtor does not plan to pay off the debt in full; (B) the cosigner or guarantor received consideration for the creditors claim; or (C) the creditor will suffer irreparable harm if the stay remains in place.
Contact an Experienced Bankruptcy Lawyer for Help
When you have questions regarding how you can protect a cosignor or gaurantor if you file for bankruptcy, it is helpful to consult with an experienced bankruptcy attorney who can provide you with information so you can decide upon the best strategy to eliminate debt without impacting family members or friends that cosigned on a loan. Contact the Peoria bankruptcy law office of Charles E. Covey for help today at 309-674-8125.