Can Bankruptcy Relieve You From Cosigned Debt?

Yes, filing for bankruptcy can help you address cosigned debts and protect you from creditor actions. Whether it’s a loan with a friend, relative, ex-spouse, or partner, cosigners (or codebtors) are treated equally liable for the debt.

How Does Cosigned Debt Work?

When you cosign a loan, you’re legally responsible for repayment if the primary borrower defaults. Creditors will pursue payments from you as aggressively as they would from the primary borrower. This includes:

  • Collection Efforts: Letters, phone calls, and legal action.
  • Judgments: A court judgment against you can lead to wage garnishments or bank account seizures.

Bankruptcy and Cosigned Debts

Bankruptcy provides a legal way to eliminate or manage cosigned debts. Here’s how it works under the two most common chapters of bankruptcy:

Chapter 7 Bankruptcy

  • Discharge: Cosigned debts are treated like unsecured debts (e.g., medical bills, credit card balances) and can be discharged entirely.
  • Secured Property: If the debt is tied to collateral (e.g., a car loan), the creditor may repossess the asset unless payments are made.

Chapter 13 Bankruptcy

  • Repayment Plan: Cosigned debts can be included in your 3-5 year repayment plan. Once the plan is completed, your obligation to repay the debt is discharged.
  • Protection for Codebtors: Chapter 13 includes a codebtor stay, temporarily shielding the other cosigner from creditor collection efforts during your bankruptcy.

What Happens to the Other Cosigner?

Bankruptcy only eliminates your liability for the cosigned debt. The creditor can still pursue repayment from the other cosigner. If you wish to protect them, consider including the debt in a Chapter 13 repayment plan to manage the payments.

Take Action to Protect Yourself

Cosigned debts can create significant financial strain, especially if the primary borrower defaults. If you’re struggling to keep up, filing for bankruptcy could provide the relief you need.

Our experienced Kansas City bankruptcy attorneys can guide you through the process and help you decide whether Chapter 7 or Chapter 13 is the right solution for you.

Schedule a consultation today to learn how to eliminate cosigned debts and regain control of your financial future.