When you file for Chapter 13 bankruptcy, you may worry about how it affects your co-signers. A co-signer is someone who guarantees your loan, making them responsible if you cannot pay. Chapter 13 offers some protection for co-signers, but there are limitations you should understand.
The co-debtor stay
One major benefit of Chapter 13 is the co-debtor stay. This prevents creditors from collecting debts from co-signers while you follow your repayment plan. Unlike Chapter 7, which does not have this feature, Chapter 13 gives your co-signers temporary relief from creditor actions.
Exceptions to the co-debtor stay
The co-debtor stay does not protect all types of debt. If the loan was for business purposes, creditors can still pursue your co-signer. They can also request permission to collect from a co-signer if they believe the stay causes them financial harm. Additionally, if you do not stay current on your payments, creditors may seek repayment from the co-signer.
Paying off co-signed debts in Chapter 13
Your repayment plan must include co-signed debts. As long as you make required payments, creditors cannot take action against your co-signer. However, if your plan does not fully repay the debt, your co-signer may still owe the remaining balance after your case ends.
Protecting your co-signer
If protecting your co-signer is a priority, ensure your repayment plan covers the full debt. You may also negotiate with creditors for better terms before filing. Open communication with your co-signer is important so they understand their risks and responsibilities.
Chapter 13 can help shield co-signers, but it does not erase their liability. Understanding these rules can help you make informed financial decisions.
