So, you cosigned a loan for a friend or family member, and now they’re filing for bankruptcy. Yikes, right? I bet you’re wondering, “What the heck happens to me now?” Well, buckle up, because we’re about to unpack the nitty-gritty of what goes down when the person you cosigned for can’t pay up.

First off, let’s get one thing straight: cosigning a loan means you’re on the hook for the debt, no matter what. Even if the primary borrower files for bankruptcy, you’re still responsible for paying back the lender. It’s like being the designated driver at a party – you’re the one making sure everyone gets home safe, even if you’re not the one having all the fun.

What Happens to Cosigners When the Primary Borrower Files Bankruptcy

Picture this: your friend or family member asked you to cosign on a loan. Being the supportive person you are, you agreed. But now, they’ve filed for bankruptcy. Yikes. As a bankruptcy lawyer, I’ve seen this scenario play out countless times. And let me tell you, it’s not pretty for the cosigner.

Automatic Stay Protection for Cosigners

When the primary borrower files for bankruptcy, an automatic stay goes into effect. This magical legal shield temporarily protects the borrower from collection actions. But here’s the kicker: in most cases, that protection doesn’t extend to cosigners. Creditors can still come after you for payment, even if the primary borrower is hiding behind the automatic stay.

Chapter 7 vs Chapter 13 Bankruptcy for Cosigners

The type of bankruptcy the primary borrower files makes a big difference for cosigners. In Chapter 7 bankruptcy, the automatic stay doesn’t provide long-term protection for cosigners. Once the bankruptcy case is closed, creditors are free to resume their collection efforts against cosigners. Chapter 13 bankruptcy, on the other hand, offers a bit more hope. The codebtor stay (more on that later) can shield cosigners from certain types of debt during the repayment plan period.

Creditor Collection Actions Against Cosigners

When the primary borrower files bankruptcy, cosigners often find themselves in the crosshairs of aggressive creditors. Lawsuits, wage garnishments, you name it – creditors will try every trick in the book to get their money from cosigners. And unfortunately, cosigners are on the hook for the entire balance of the debt, even if the primary borrower’s obligation is wiped out in bankruptcy. I’ve seen cosigners’ lives turned upside down by relentless collection actions. It’s not a pretty picture. Seeking help from a skilled bankruptcy attorney is crucial in these situations.

How Bankruptcy Affects a Cosigner’s Credit Score and Financial Obligations

As if dealing with aggressive creditors wasn’t bad enough, cosigners also have to worry about the impact of bankruptcy on their credit.

Impact on Cosigner’s Credit Report

Now, the bankruptcy itself won’t show up on the cosigner’s credit report. But if the debt becomes delinquent or goes into default because the primary borrower isn’t paying, that’s a different story. Late payments and defaults will absolutely tank the cosigner’s credit score. It’s a frustrating reality, especially if the cosigner has been diligently making their share of the payments.

Cosigner’s Responsibility for Debt Payment

Here’s the harsh truth: cosigners are 100% responsible for paying the debt, even if the primary borrower files for bankruptcy. The cosigner’s obligation doesn’t magically disappear just because the primary borrower is off the hook. Nope, the cosigner has to keep making those payments if they want to protect their credit.

Debt Discharge and Cosigner Liability

When the primary borrower receives a discharge in bankruptcy, their personal liability for the debt is erased. But that discharge doesn’t extend to cosigners. The cosigner remains fully liable for the debt balance. They have to keep paying, or face the wrath of creditors and credit damage. It’s a tough pill to swallow.

Protecting Cosigners During Bankruptcy with the Codebtor Stay

Okay, it’s not all doom and gloom for cosigners. In Chapter 13 bankruptcy, there’s a glimmer of hope called the codebtor stay.

What is the Codebtor Stay

The codebtor stay is like a force field that temporarily shields cosigners from collection actions during the Chapter 13 repayment period. It applies to consumer debts where someone else is jointly liable with the person filing for bankruptcy. The codebtor stay basically tells creditors, “Hey, hands off the cosigner while the primary borrower is making payments under the plan.”

How the Codebtor Stay Helps Cosigners

The codebtor stay gives cosigners some much-needed breathing room. As long as the primary borrower stays on track with their Chapter 13 plan payments, creditors can’t go after cosigners for the duration of the bankruptcy. It’s not a permanent solution, but it does provide temporary relief and protection for cosigners who are caught in the bankruptcy crossfire.

Limitations of the Codebtor Stay

Now, the codebtor stay isn’t a magic wand. It has some limitations that cosigners need to be aware of. For starters, it only applies to consumer debts, not business debts. And it doesn’t cover most secured debts like car loans or mortgages. Plus, if the primary borrower falls behind on their Chapter 13 payments, the codebtor stay can be lifted. That means creditors can resume their collection efforts against cosigners. It’s a precarious situation.

Options for Cosigners to Minimize the Impact of Bankruptcy

If you’re a cosigner facing the fallout of someone else’s bankruptcy, you’re probably feeling overwhelmed and frustrated. But there are some steps you can take to protect yourself.

Communicating with the Primary Borrower

First and foremost, keep the lines of communication open with the primary borrower. Have an honest conversation about their financial situation and any plans to file for bankruptcy. The more you know, the better prepared you’ll be to handle the potential consequences and explore your options.

Seeking Legal Advice from a Bankruptcy Attorney

Consulting with a knowledgeable bankruptcy attorney is crucial for cosigners navigating the complexities of bankruptcy. An experienced lawyer can assess your unique situation, explain the implications, and help you develop a strategy to minimize the damage. Don’t try to go it alone – seek professional guidance to protect your rights and interests as a cosigner.

Considering Filing for Bankruptcy as a Cosigner

In some cases, cosigners may need to consider filing for bankruptcy themselves if the debt burden becomes too much to bear. If you’re struggling to keep up with payments on cosigned debts after the primary borrower files for bankruptcy, it might be time to explore your own bankruptcy options. Filing for Chapter 7 or Chapter 13 could provide relief and help you regain your financial footing. But be sure to discuss this decision carefully with a bankruptcy attorney before taking any action. They can help you weigh the pros and cons and determine if bankruptcy is the right choice for your situation.

Key Takeaway: 

When a friend or family member files for bankruptcy, cosigners can face tough times ahead. The automatic stay doesn’t usually protect you, and creditors might come knocking. Chapter 13 offers some hope with the codebtor stay, but it’s not foolproof. Keep talking to the primary borrower and consider getting legal advice to navigate these choppy waters.


So, what happens to cosigners in bankruptcy? Well, it’s not all doom and gloom, but it’s no walk in the park either. The codebtor stay in Chapter 13 can give you some breathing room, but it’s not a get-out-of-jail-free card. Your credit score might take a hit, and you could still be on the hook for the debt.

The best thing you can do is stay in the loop with the primary borrower, talk to a bankruptcy attorney, and maybe even consider filing for bankruptcy yourself if things get too tough. It’s not the most fun situation to be in, but with a little knowledge and some smart moves, you can come out the other side in one piece. If you need anything, don’t hesitate to reach out to The Law Office of William Waldner. We offer free consultations and guide our clients toward the best resolutions.