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When filing for bankruptcy, it is important to check the rules especially if you have a co-signer. Your co-signer was the one who co-signed your debts when you applied for it. Your co-signer vouched about your credibility as a borrower, which is how you got the approval.

Generally, a co-signer is accountable to pay in case the borrower defaults payments. If you are going to file for bankruptcy, will your co-signer still be required to pay for your debts?

Chapter 7 and 13 Bankruptcy and Your Cosigner

If you’re qualified to file for a Chapter 7 bankruptcy, you should know that your co-signer will not be exempted from the obligation. A Chapter 7 bankruptcy will discharge you from your debts but not your co-signer. Technically, your creditors can still demand that your co-signer pays back your outstanding debts.

A co-signer is only protected from liability with a Chapter 13 bankruptcy. However, a chapter 13 bankruptcy will not discharge the borrower from debt repayment. Instead, he/she will be given a repayment plan to pay back creditors.

With the new repayment plan, the borrower’s debt will be reduced along with the interest rate. A trustee will be appointed to oversee that repayments are made on time and that these payments are properly distributed to the respective creditors. Under the new Bankruptcy Law, a repayment plan will last for five years.

During the whole repayment plan’s term, the co-signer will be free from any obligation. Nevertheless, once the repayment plan ends, the co-signer will then again be liable to pay any outstanding debts in the borrower’s account.

Bankruptcy and Your Attorney

Obviously, a co-signer is presented with a huge accountability when it comes to debts. Even filing for bankruptcy will not easily release them from such obligation. As the borrower, it is important to seek a bankruptcy attorney about these matters to ensure that your co-signer will be given due protection.

It is also important to remember that since the New Bankruptcy Law took effect, filing for bankruptcy has become more rigorous than ever. Your attorney will not be able to decide for you about which type of bankruptcy to file. This power now lies under the bankruptcy court judge. The judge shall be the one to determine whether you can qualify for a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.

The new bankruptcy law requires all applicants to go through the “Income Means Test” calculation. This test analyzes the individual’s income in comparison to monthly expenses and financial capability to pay debts. Those who pass the test will be able to file for a Chapter 7 Bankruptcy. Otherwise, a Chapter 13 Bankruptcy will be the next option.

Take note that with the new bankruptcy law, your bankruptcy attorney is also given more tasks with the preparation and filing of the documents. The attorney is required to ensure that all documents are accurate to avoid any liability.

If there has found to be any inaccuracy or fraud in the documents filed, your attorney will be required to pay a penalty fee and answer charges. With this mind, it’s very likely that you will be paying quite an expensive attorney’s fee to get the service.