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Bankruptcy and the Protection of Your Co-Signer

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Published: 28Feb2010
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It is very important that you know the rules very well when filing for bankruptcy not only for your protection but also for the protection of your co-signer.

First, let us define what a co-signer is. A co-signer is the person who legally guarantees another person's credibility to obtain a loan. A co-signer is required if the primary loan applicant has bad credit history. As a co-signer, this person agrees you accept to be responsible for the repayment of the loan should the first signer fails to pay debts on time.

Now,will a co-signer still be required to pay for your debts if you filed for bankruptcy? Let us discuss what the law says about this.

Chapter 7 and 13 Bankruptcy and Your Cosigner

There are different kinds of bankruptcy. Let us talk about Chapter 7 and 13 and how it can affect your co-signer.

Chapter 7 bankruptcy. Only the debtor is protected under Chapter 7 bankruptcy. Sad to say, creditors still have the right to demand that your co-signer pays off the outstanding debts.

Chapter 13 bankruptcy. The co-signer is given protection in this kind of bankruptcy. In a Chapter 13 bankruptcy, the borrower is not freed from his/her repayment obligations to creditors. Instead, the borrower is only given a repayment plan to pay back his/her creditors.

With a Chapter 13 bankruptcy, the original amount of debts as well as the interest rates is reduced. Someone would be assigned to monitor if the borrower is keeping up with the payment schedule. The repayment plan would last for five years under the new Bankruptcy Law.

As for the co-signer, he/she will still be liable to pay the outstanding if the original borrower fails to complete payments within the 5-year plan.

Bankruptcy and Your Attorney

As a debtor, you must really seek a bankruptcy attorney's assistance for you to have better understanding of what bankruptcy is and what it holds for your co-signer. It is a debtor's responsibility to ensure that his/her co-signer is given due protection . Always keep in mind that filing for bankruptcy will not release your co-signer from accountability.

There is a New Bankruptcy Law and you should be well aware about how it works. It is not for you or for your attorney to decide which kind of bankruptcy you can file for. It is for the bankruptcy court judge to decide After doing a thorough review and investigation of your application, the judge would determine if you qualify for a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.

All applicants are required to undergo the "Income Means Test" calculation. This test analyzes the individual's income in comparison to monthly expenses and financial capability to pay debts. Applicants who passed the test will be able to file for a Chapter 7 Bankruptcy. For those people who failed, a Chapter 13 Bankruptcy will be the next option.

A bankruptcy attorney is given more tasks along with this New Bankruptcy Law. Extensive preparation is a must to make sure that every document is accurate prior to submission. If the judge sees any inaccuracy or fraud in the documents, your attorney will then be required to pay a penalty fee and answer charges.

New Horizon Business Services, Inc NHBS, Inc has been providing consumers and business owners with financing since 1989. Join our mailing list for Free Tips on Rebuilding and Repairing Credit. Click here for the list of loans for people with bad credit.

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