One question that comes up from time to time with my clients is what will happen to someone who has a co-signed a loan for them. This can be a big concern, especially if the co-signer was a family member. Of course, my clients wants, if possible, for the co-signer not to be on the hook for any of their debts.
Unfortunately, if you file Chapter 7 bankruptcy, your co-signer will be liable for the discharged loan. In the case of certain loans, such as a car loan, a debtor might be able to keep the creditor from going after the co-signer if the debtor signs a reaffirmation agreement.
However, Chapter 13 bankruptcy offers protection to co-signers. Section 1301(a) provides:
Except as provided in subsections (b) and (c) of this section, after the order for relief under this chapter, a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor, or that secured such debt, unless—(1) such individual became liable on or secured such debt in the ordinary course of such individual’s business; or(2) the case is closed, dismissed, or converted to a case under chapter 7 or 11 of this title.