27th Jun 2017

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A Chapter 13 bankruptcy will allow you rid yourself of debts and retain various assets. However, many people have cosigners on their debts, therefore one must understand the consequences of the bankruptcy for them. Once a Chapter 13 bankruptcy is filed, an automatic stay comes into effect protecting the filer from further attempts at debt collection by the creditors. During a Chapter 13 bankruptcy the codebtor stay will also prevent collection requests from your cosigner(s). But be aware – under various circumstances the creditors may apply to remove the codebtor stay, these include:

 

  • Non-consumer debts: The codebtor stay will only apply your to consumer debts. These include credit card purchases of food or other essential items. They don’t include business debts and creditors may attempt to retrieve these debts from a cosigner.

 

  • Incomplete repayment plan: Your cosigner and yourself may both be liable for payments  if your Chapter 13 repayment plan is not fully completed.

 

  • Debt not listed as part of your repayment plan: If you do not list a debt in your Chapter 13 bankruptcy plan, the codebtor stay could be lifted for that payment.

 

  • A cosigner benefited from the debt: The codebtor stay may be removed for debt from which the cosigner benefited. This may include a vehicle loan relating to a car that was used often by your cosigner.

 

  • Irreparably damage to the creditors interests: Creditors can remove a codebtor stay if their financial interests will be seriously affected.

Protecting a Cosigner in a Chapter 7 Bankruptcy

A codebtor stay relates principally to a Chapter 13 bankruptcy (but is also possible in a  Chapter 7). It will remain in place for the full term of your repayment plan. When your repayment plan has been completed, remaining debts which were cosigned may can be be completely repayed or discharged.

 

In cases where you have used a cosigner for your debts, Chapter 13 is probably the most suitable bankruptcy type for you. It does also depend on your personal situation. It is also possible to protect a cosigner in Chapter 7 bankruptcy. This is done by reaffirming your debt. In the case of Chapter 7 you can make an agreement with creditors to personally repay the debt without involving the cosigner.

 

If you want to discuss this topic further, please contact me at 281-847-4345 or rkemsley@kemsleylaw.com so we can discuss your individual situation and see if Chapter 7 or Chapter 13 would work for you and how we can help you set up a plan to pay the required fees.  The consultation is free.  Take the first step by calling me today.  I look forward to hearing from you soon.

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