Protecting a Co-Signer in Bankruptcy

If you've decided to file bankruptcy, your attorney will ask you for a lot of information, including whether you have co-signed any debts.  They'll ask you for the name and address of anyone you co-signed a debt with, because that person is entitled to be mailed a notice of your filing.

But filing bankruptcy doesn't have to affect your co-signer's credit. Let say your mother co-signed your car loan.  So long as someone keeps paying that car loan on time, your mother's credit will not be hurt.  Your bankruptcy will release your liability on the car loan.  In other words, you could stop paying tomorrow and the bank could repossess, but they couldn’t sue you.  But they could still sue your co-signer.  While your bankruptcy is open,  though, the lender may not be able to take any action against you OR your co-signer, even if you're in default.

To consider a different situation, imagine that you co-signed a car loan for your brother.  Your brother gets overwhelmed by debts and files bankruptcy. Will your credit be hurt by his filing? Not necessarily. Again, so long as someone is paying the loan on time, your credit will not be hurt.  But realize that while he may get rid of his liability on the car loan through bankruptcy, the lender will still hold you liable.  So if he fails to pay, you have to step in, or deal with the lender's collection actions.