The Short Answer
Whether your bankruptcy affects a cosigner depends on two things: which chapter you file and whether you surrender the property. In a Chapter 7 or Chapter 13, if you surrender secured property, the creditor will sell it and pursue the cosigner for the remaining deficiency balance — the cosigner does not get the same discharge you do. If you keep making your payments on time, the cosigner typically won't be impacted. The key is staying current, because the moment you stop paying, the cosigner becomes fully exposed to the creditor.
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Chapter 7 Bankruptcy:
Person Filing Surrenders Property
First of all, keep in mind in order to file a Chapter 7 bankruptcy you must be current on everything unless you are willing to surrender the property. Let’s consider the following example: you owe on a debt such as a car loan, but are behind on the payments. You come in for a free consultation, learn that you may be eligible to file a Chapter 7 bankruptcy, and decide you are going to surrender the property to the creditor since you are behind on payments. However, someone has cosigned on the debt with you, and you are wondering what that is going to mean for the other person. He or she (the cosigner) would still be responsible for the full amount that is owed to the creditor. The creditor will typically sell the property an auction and the cosigner will be responsible for the deficiency balance.
If the debt is an unsecured debt (no property as collateral) then the creditor can go after the cosigner for the full amount owed on the debt.
Person Filing Keeps Making Payments
Chapter 13 Bankruptcy:
Person Filing Surrenders Property
If you are filing Chapter 13 bankruptcy and have decided to surrender property, the cosigner will be affected in regards to the debt. Typically speaking, the creditor will still seek the amount owed from the cosigner and hold them responsible for the debt amount after it has been sold at an auction. It’s up to the person filing whether or not to let the cosigner know that they are going to be surrendering the property. However, it’s important to know the cosigner will be responsible for paying back the deficiency balance on the debt.
Person Filing Does Not Surrender Property
In a Chapter 13 bankruptcy, if the person keeps making payments on the property and decides not to surrender it, the cosigner will not be affected most of the time. Chapter 13 bankruptcy is a repayment plan but as long as the person filing is making payments on the debt, the cosigner should not be impacted. However, there have been rare situations where we have seen someone who has cosigned on a debt with a person who filed a Chapter 13 bankruptcy and on the cosigner’s credit it shows they are one month behind on payments despite the fact that it is being paid within the Chapter 13 bankruptcy plan. Since the Chapter 13 bankruptcy Trustee does not make the full payment each month (they typically pay 1/60th of the amount owed over the course of 60 months) the creditor may report that the cosigner is behind a portion of a payment. This doesn’t happen often but we have seen it before so we wanted to be sure to make you aware of it.
Key Takeaways
- If you surrender property in either Chapter 7 or Chapter 13, your cosigner remains fully responsible for any deficiency balance after the creditor sells the asset.
- A cosigner receives no protection from your bankruptcy discharge — your relief does not extend to them.
- As long as you keep making on-time payments in Chapter 7, your cosigner should not be affected by your filing.
- In Chapter 13, because the trustee pays creditors in installments rather than full monthly payments, a creditor may occasionally report the cosigner as partially behind — even when you are paying through your plan.
- For unsecured debts with no collateral, surrendering the property is not an option — the creditor can pursue your cosigner for the full balance owed.
- Before you file, it is worth having a direct conversation with your cosigner so they understand what your decision may mean for them financially.
Attorney Insight
The mistake I see most often is people assuming their discharge protects everyone on the loan — it doesn't. Your bankruptcy wipes out your personal liability, but the cosigner signed that same contract and the creditor can go after them for every dollar remaining. What catches people off guard in Chapter 13 specifically is the installment payment issue: because the trustee pays 1/60th of the amount each month rather than a full monthly payment, we've seen creditors in NC report cosigners as delinquent even when everything is being paid properly inside the plan. It's not common, but it happens — and it can blindside a cosigner who had no idea their credit was being hit.
