Bankruptcy How It Affects Co-signers and Creditors

Bankruptcy How It Affects Co-signers

 After an individual or company files for bankruptcy, the creditors have a small number of avenues to left to pursue.  They can give up all efforts to actively recover their money and file their claim in the bankruptcy, or they can start collection efforts against a debtor or co-signer, not included in the bankruptcy.  

When a debtor files a bankruptcy in Chapters 7, 11, or 13, the court protects them against further action by instituting an automatic stay. This automatic stay effectively blocks most action against the debtor or the debtor’s property.

 When a debtor creates their debt with help of a co-signer may leave that co-signer open to collection action from the creditor the debtor included in the bankruptcy.  This pursuit of the co-signer is dependant on the type of Chapter the debtor has filed.

 If the debtor filed for Chapter 7 or for Chapter 11 business bankruptcy, the creditor is allowed to look to the co-signer for repayment. These co-signers are not protected under the automatic stay.

 If the debtor files for Chapter 13, the creditor is blocked by the automatic stay from instituting collection efforts against the co-signer.  The exception to this is for a filing on a commercial debt.