When you cosign a loan, you and your cosigner are bound together for the duration of the obligation. If you get into financial difficulties, your problems become your cosigners’ problems as well. If you are unable to pay your bills, a typical bankruptcy discharge will dismiss your debts, but it will not assist your cosigner.
Anyone who cosigned for you is exposed even while you are shielded in bankruptcy by the automatic stay, which keeps creditors at away, and by the discharge at the end of the case. However, Chapter 13 isn’t your typical bankruptcy. It provides extra protection to persons who have co-signed loans. Keep reading to get the facts from a bankruptcy lawyer Fontana and then contact us at (909) 552-1238 for help.
Co-signers are covered by the automatic stay
Section 1301 of the Bankruptcy Code, which is unique to Chapter 13, extends the automatic stay’s protection to people who are jointly responsible with the debtor on consumer debts. The debt must be for a personal or household purpose to qualify. For example, a car loan with a cosigner is covered while a company lease with a cosigner is not.
The loan’s benefits must have gone to the individual who filed for bankruptcy. Your buddy isn’t covered by your Chapter 13 stay if you co-signed a loan for them. Finally, the Chapter 13 plan must provide for complete payment of the debt in order to keep the stay in place.
Debts that are co-signed are given priority
All unsecured, non-priority debts must be treated equally under Chapter 13 arrangements. The plan pays the same percentage to each of the general unsecured claims. Cosigned debts, on the other hand, are not excluded. The cosigned debt might be treated differently and favorably than other obligations by the debtor.
It’s fine to designate a cosigned obligation separately and pay it in full, while other debts receive little or no treatment under Chapter 13. The strategy from your bankruptcy lawyer Fontana might be to pay 100% of the authorized claim on BIG BANK’s joint credit card claim, while paying significantly less to everyone else.
When the plan is completed
The only snag for the cosigner, who is shielded from collection on the cosigned debt throughout the plan, is the possibility of interest accruing on the loan over the plan’s duration. The principle on the debt, as well as any interest owing at the time the case was filed, will be paid at the end of the plan.
During the plan, however, the bankruptcy case does not prevent interest from accruing at the agreed rate. Despite the bankruptcy, the cosigner is still responsible for the interest. If you have questions, or are ready for a consultation with a bankruptcy lawyer Fontana, contact Law Offices of Terrence Fantauzzi at (909) 552-1238.