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Co-Signers Beware!

If you co-signed a loan to help your child obtain an automobile or a credit card, it may surprise you to find out that, if your child files for bankruptcy, you are still on the hook for that debt. When a debtor files for bankruptcy, the creditor can still pursue payment from the non-bankrupt co-signer. Only the debts of the debtor who filed for bankruptcy are actually discharged — unfortunately for you.

When debtors file for bankruptcy, they often assume their co-signers will be off the hook, as well. However, that is not true. If you are filing for bankruptcy, you should tell your attorney about debts that you have co-signed with another person, because your attorney will be able to advise you about consequences to your co-signer in the event that you obtain a bankruptcy discharge.

One way to protect a loan co-signer is by filing for Chapter 13 bankruptcy. One immediate beneficial effect is that Chapter 13 stays collection actions against co-signer. In addition, a debtor can propose a Chapter 13 plan that would pay off the co-signed loan in full. The effects of your bankruptcy on a co-signer and whether or not you have the option to protect the co-signer in any way is something you should discuss with a knowledgeable bankruptcy attorney.

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