What if I Have Co-signed Debt and I File for Bankruptcy in Ohio?

When most people file for bankruptcy, they’re looking for a way out of crushing debt. Some, though, aren’t just concerned about how the move will impact their own lives – they’re also concerned about how it will impact the lives of those who have co-signed on some of those debts. If you hold debt jointly with another person, it’s wise to think about how your choice to file bankruptcy will impact everyone involved.

If you took out a debt with a co-signer, there’s a good chance that you were the person who was supposed to pay the debt. The co-signer’s role was as a security to the creditor to ensure that someone would pay the debt even if you were rendered unable to do so. No matter which side of the agreement that you found yourself on, there was an understanding that someone would pay off that debt.

It’s always a good idea to make sure that you know exactly what you’ve signed.

You might think that you have joint liability with the co-signer or that you have an agreement to pay the debt regardless of the existence of your co-signer, but that may not be the case. Your goal is to figure out what you really owe and to whom.

If you find out that you do owe a debt, you may want to file bankruptcy. Things get a bit complicated here, though, as you’re now left figuring out both how to deal with your obligations to your creditor as well as how to deal with the original agreement between yourself and the co-signer.

In the strictest of senses, your obligations to the creditor likely stop when you successfully declare bankruptcy. You’ll certainly need to check on your legal obligations to pay to determine if the debt can be discharged, of course, but your relationship with the creditor may well be severed after your bankruptcy process has been completed. The real issue for most requires figuring out what kind of obligation you have to your co-signer.

Remember, you’re now putting your co-signer in a position that would require him or her to pay the debt. With regards to a Chapter 13 bankruptcy, often times, a debt can be paid in full in order to protect a co-signor (and the co-debtor would also be protected by the automatic stay that protects a Debtor). Additionally, if a Debtor has an agreement with the co-signor that the co-signor will continue to pay the debt, even though a bankruptcy has been filed, treatment can be provided in a Chapter 13 to continue to allow the co-signor to pay the debt.

It’s important that you remember that you have a legal and financial relationship with your co-signer. If you are planning on filing bankruptcy, you have to list not only the creditor but also your co-signer on your list of creditors. It’s important to have a conversation with the co-signor on the ramifications of a bankruptcy being filed. If you have questions about these obligations, Wood & Brewer can help!