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Chapter 13 bankruptcy and co-signed debts

According to the U.S. Census Bureau, the median household debt was $70,000 in 2011. If you are like others in Washington, D.C., you may have a co-signer on one or more of your debts. When considering your debt relief options, such as filing for Chapter 13 bankruptcy, we at Ammerman & Goldberg “Bankruptcy” Law Office know you may be concerned about how your co-signers will be affected. In this post, we will discuss how co-signed debts are treated in Chapter 13 bankruptcy.

By filing for chapter 13 bankruptcy, you are able to protect your co-signers in a way that is not possible with other debt relief options. After your petition is submitted, the court will issue a co-debtor stay. This order prohibits your creditor from making collection efforts against your co-signer. The protection provided by the stay lasts as long as the order is in place, even if the co-signer has not filed for bankruptcy his or herself.

Co-signed debts are handled much differently through this option than they are in a Chapter 7 bankruptcy. When you seek Chapter 7 protection, your co-signers stay on the hook for the debt, even after your liability has been discharged.

There is a number of ways for creditors to work around co-debtor stays. If a co-signer receives the primary benefit of the loan, the court may be persuaded to lift the stay. Additionally, creditors may get permission from the court to collect from your co-signer if you do not include the debt in your Chapter 13 repayment plan. The court may also lift such orders in cases when the creditor’s interest may be irreparably harmed if they remain in place.

For more information about your options for dealing with financial challenges, please visit our Chapter 13 bankruptcy page.

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