You may be facing a situation, like many people in New Jersey, where you just can't get by anymore and you have to file bankruptcy. But one of the problems is that one of your debts (most often something like a car loan) was co-signed by a friend or family member. What do you do? What can happen if you file bankruptcy? Well, that can depend on what type of bankruptcy you file.
Chapter 7 Bankruptcy
If you file a chapter 7, which seeks to wipe out your debt all at once and give you a fresh start, then your cosignor is still responsible for all of it, and the creditor can go after him/her to collect. That is why they got a co-signor in the first place, to have a backup plan!
The solution may well be to continue making voluntary payments on thee debt after the bankruptcy is over to keep them from going after the other person.
Chapter 13 Bankruptcy
If you file this type of bankruptcy and have a payment plan to creditors, the situation is different. Something called a "co-debtor stay" can come in to protect the co-signor, but only to the extent that your plan repays the debt.
So if your plan pays the creditor 100%, then the co-debtor cannot be touched. However, if you are paying less than 100%, or nothing, the creditor can go after the co-debtor for the unpaid portion.
So as you can see, you have to tread carefully in your bankruptcy if you wish to protect the co-signor. This means ongoing payment of the debt in a chapter 7 or careful drafting of your repayment plan in a chapter 13.
So What Do I Do?
If you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.
If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.