My wife and I made the decision to open a residential cleaning business. We needed enough money to get the equipment, do a bit of advertising and get the licensing and insurance to protect ourselves and our customers. For about two years, things went very well, but then, things took a terrible spin for the worst after we hired a few employees to help us with the workload. Since then, we have gone bankrupt and have gone back to working full time jobs. If you are struggling with your business and considering bankruptcy, this blog can give you some answers to the many questions that you have.
Are you considering bankruptcy but have debts shared with co-signers? If so, one of the most important questions to answer is how your co-signer will be affected and how you might be able to fully protect them. To help you understand everyone's risk and options, here are a few key things to know about co-signed debts in bankruptcy.
1. Co-Signers Don't Get Discharges
The first — and possibly the most important — thing to know is that co-signers don't receive a discharge on the debt even if you do. For this reason, you should always discuss your bankruptcy plans with any co-signers so they can make a personal plan to avoid adverse impacts.
2. Co-Signers Do Get a Stay
One piece of good news for co-signers is that they are covered by your automatic bankruptcy stay. The co-signer stay, along with the debtor stay, temporarily prevents creditors from pursuing collections efforts including foreclosure, repossession, disconnection, and garnishments. The stay may be short or it may last until your case is completed. But it gives you and your co-signer time to find the best solutions.
3. You Can Reaffirm a Loan
A secured loan — such as a vehicle loan or mortgage — can often be reaffirmed in Chapter 13 bankruptcy so that you can keep the collateral if you continue making the payments. Reaffirmation generally prevents creditors from pursuing your co-signer for payment. However, you lose bankruptcy protection for the loan, so be sure this is a realistic option first.
4. You Can Also Pay Voluntarily
Just because a shared debt is discharged from your legal responsibility, doesn't mean you can't continue to pay it after the bankruptcy has closed. Voluntarily paying the debt directly or to your co-signer means that their credit is not negatively affected, and they don't need to pursue relief as well. If this is a workable solution, talk with your co-signer before filing so you're both on the same page.
5. Your Co-Signer May Need Bankruptcy
If all else fails, your co-signer may need to consider filing for their own personal bankruptcy. This depends on their circumstances, of course, and they should research this option independently. However, if the co-signer is your spouse, you may save time and money with a joint bankruptcy claim.
Want to know more about helping and protecting your co-signer when bankruptcy is the best solution for you? Start by meeting with a bankruptcy law attorney in your state today.
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