Cosigners assume the responsibility to pay for another individual's debt in the event of a default, and that responsibility is not necessarily removed in the event of the debt being listed in a bankruptcy. Under certain circumstances, a cosigner or guarantor may still be pursued by creditors even if the debt is discharged and the primary borrower is relieved of payment liability.

The level of cosigner protection is different between Chapter 7 and Chapter 13 filings. The automatic stay in a Chapter 7 bankruptcy is only extended to you; creditors can still make collection attempts on any cosigners or guarantors. In order to protect third parties, consider reaffirming the debt prior to receiving a discharge. However, a reaffirmation agreement removes any possible discharge benefits and forces you to assume full repayment responsibilities.

You can also receive a discharge and still opt to make payments on a debt, although you have no legal obligation to do so. This could prevent creditors from pursuing your cosigners.

Chapter 13 bankruptcies afford much more protection to cosigners and guarantors. The automatic stay extends to all parties listed on the debt (sometimes called "co-debtor stay"), forcing creditors to pursue a relief from stay to make any collection attempts.

There is one very notable exception to co-debtor stay in a Chapter 13: if one of your debts is not included in the Chapter 13 repayment plan by the bankruptcy judge, then your creditors may once again pursue the cosigner or guarantor on the loan. Debts not listed tend to be small and unsecured.

If you file a Chapter 13 and then convert into a Chapter 7, co-debtor stay protection is lifted and cosigners are once again liable for remaining debts.

  1. What's the Differences Between Chapter 7 and Chapter 11?

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  2. What are the differences between Chapter 11 and Chapter 13 bankruptcy?

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