If You Have a Cosigner, How Can Your Protect Them If You File North Carolina Bankruptcy?

How Can You Protect a Cosigner when You File a North Carolina Bankruptcy?

Submitted by Rachel R on Sat, 10/26/2013 - 12:08am

How Can You Protect a Cosigner when You File a North Carolina Bankruptcy?

Image source: BobHumel.com

If you’re struggling with your debts and are considering filing for a North Carolina bankruptcy, you may want to pause and think about the implications if you have any cosigned debt. Cosigned debt is typically initiated when your credit rating is insufficient to qualify for a loan and someone else co-signs with you who has better credit. Once signed, both you and your cosigner are equally responsible for the debt. This also means that if you file bankruptcy, your cosigner will have a role in that situation as well.

Cosigners & Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, most of your unsecured debts will be discharged and you will no longer have to pay off the loans. However, your cosigner will still be on the hook for the original promissory note because the whole notion of cosigning is an obligation to pay the debt if the primary debtor is unable to do so. Chapter 7 is a perfect example of this instance and unless you fulfill the obligation, your cosigner’s credit will suffer and the creditor could pursue legal action against your cosigner.

Image source: FoxBusiness.com

Protecting Your Cosigner in Chapter 7

There is only one way that you can protect your cosigner during a Chapter 7 bankruptcy. Federal bankruptcy laws allow you the option of choosing to pay some of your unsecured debts rather than discharging them. To protect your cosigner, you can choose not to discharge a particular debt, bring it current, if it isn't already, and maintain the payments. Depending on the type of loan – such as an auto loan – you may be able to reaffirm it.

Cosigners & Chapter 13 Bankruptcy

The best way to protect cosigners is to file Chapter 13 bankruptcy rather than Chapter 7. This type of bankruptcy puts you on a schedule to pay off your debt on a three to five year payment plan. Typically some unsecured debt will still be discharged or greatly minimized but you can choose to pay off 100% of the debt that was cosigned to protect your debtor in the long run. In the short run, your cosigner will also be protected by a “co-debtor stay.”

Image source: RandolphBailBonds.com

Chapter 13 Co-Debtor Stay  

When you execute a Chapter 13 bankruptcy, a co-debtor stay is initiated. This means that for a period of three to five years (the length of your repayment plan), so long as you are actively following your repayment plan, your creditors will not pursue your co-debtor for the debt payments. But there are conditions:

#1 The debt must be consumer debt rather than business.

#2 The cosigner must be an individual, not a corporation or a partnership.

#3 The cosigner did not become liable for the debt during the ordinary course of business.

#4 The cosigner must not have been the beneficiary of the debt.

Final Thoughts

If you file Chapter 13 and the repayment does not fully satisfy the debt, then the creditor must show proof that your inability to repay the debt in full causes them "irreparable harm." If the judge agrees, the co-debtor stay will be released and the cosigner will be pursued for the outstanding balance. If you have debt that was cosigned by someone else, you should carefully consider what type of bankruptcy you will file and how you will handle cosigned debt. To figure it out, you need the advice of a reputable and experienced North Carolina bankruptcy attorney. Contact John T Orcutt today to find out how to get the best possible debt relief solution when you have cosigned debt.

Debts Hurt! Got debt? Need help? Get started below!

Serving All of North Carolina

  • Charlotte
  • Fayetteville
  • Durham
  • Wilson
  • Greensboro
  • South Raleigh (Garner)
  • Southport
  • Wilmington

North Raleigh

6616 Six Forks Rd Suite 203 Raleigh, NC 27615 North Carolina

Tel: (919) 847-9750

North Raleigh

Charlotte

7400 Carmel Executive Park Dr Suite 105 (In association with) Charlotte, NC 28226 North Carolina

Tel: (704) 318-2702

Charlotte

Fayetteville

2711 Breezewood Ave. Fayetteville, NC 28303 North Carolina

Tel: (910) 323-2972

Fayetteville

Durham

1738 Hillandale Road Suite D Durham, NC 27705 North Carolina

Tel: (919) 286-1695

Durham

Wilson

2215 Nash St. NW Wilson, NC 27896 North Carolina

Tel: (252) 234-9194

Wilson

Greensboro

600 Green Valley Road Suite 210 Greensboro, NC 27408 North Carolina

Tel: (336) 542-5993

Greensboro

South Raleigh (Garner)

143 Highway 70 Garner, NC 27529 North Carolina

Tel: (919) 747-4400

South Raleigh (Garner)

Southport

4320 Southport Supply Road SE Suite 300 Southport, NC 28461 North Carolina

Tel: (910) 218-8682

Southport

Wilmington

4320 Southport Supply Road SE Suite 300 Southport, NC 28461 North Carolina

Tel: (910) 447-2987

Wilmington