When someone co-signs a loan, they agree to share responsibility for the debt. If the primary borrower cannot pay, the co-signer becomes responsible. In Texas, this obligation remains even if the borrower files for bankruptcy.
Bankruptcy does not automatically erase a co-signer’s duty to repay the debt.
Chapter 7 bankruptcy and co-signers
Chapter 7 bankruptcy may discharge the primary borrower’s debt, but it does not release the co-signer’s responsibility. Creditors can still pursue the co-signer for the full amount of the debt. The co-signer may need to make payments to prevent collection actions, such as lawsuits or wage garnishments.
Chapter 13 bankruptcy and co-signers
Chapter 13 bankruptcy offers more protection for co-signers. Under the automatic stay, creditors cannot take action against co-signers during the repayment plan, as long as the borrower includes the debt in the plan and continues to make timely payments. However, if the borrower fails to meet these obligations, creditors can seek repayment from the co-signer.
Reaffirming or paying off debts
In some cases, borrowers choose to reaffirm certain debts or pay them off during bankruptcy to protect their co-signers. Reaffirming a debt means the borrower agrees to continue paying it, even after the bankruptcy is complete. This approach can help prevent creditors from pursuing the co-signer but requires careful consideration of the financial impact.
Understanding your options
Bankruptcy can create challenges for co-signers, but there are ways to minimize the impact. Knowing how different types of bankruptcy affect co-signers can help individuals make informed decisions and protect their financial well-being. It’s important to explore all available options and choose a path that supports everyone involved.
