In many instances individuals with less than stellar credit ask parents, other family, or friends to be a codebtor on a loan. This is commonly the case of car and student loan cosigners. The point of that cosigner is to provide additional protection to the lender in case the borrower fails to fulfill the contract.
If that borrower files for bankruptcy, no matter which Chapter, a stay preventing any collection efforts is created on behalf of the borrower (debtor). However, depending on the Chapter of Bankruptcy, that stay may not include protection for the cosigner.
In Chapter 7 cases, the codebtor is provided no protection against the borrower’s creditors. However, in Chapter 13, creditors “may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor, or that secured such debt.” 11 U.S.C. § 1301(a).
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Even in Chapter 13 cases, the Bankruptcy Code provides exceptions to this protection. For example, the debts must be consumer, not business, debts. This means that a particular debt must have been incurred by an individual primarily for a personal, family, or household purpose. Because other exceptions apply, contact the Henshaw Law Office at (408) 599-1305 to see the best path forward.
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