Few students in Florida who need private student loans can get one without a cosigner. This usually isn’t a problem if you pay off your loans without assistance. But what happens if you can’t afford to pay off your debts and need to file for bankruptcy? When it comes to cosigner liability in bankruptcy, the basics alone can be complex if you are unfamiliar with Florida law. Here is what you need to know about what happens to a cosigner’s liability with student loan bankruptcy.
Cosigner Liability in Bankruptcy: The Basics
When someone agrees to cosign your student loans, they are agreeing to repay your debts if you fail to do so. Bankruptcy does not meaningfully change that. While you may have found a way to absolve yourself of your student loan debt, your cosigner has not. Typically, any liability the cosigner had before you declared bankruptcy continues after you declare bankruptcy. Certain types of bankruptcy may temporarily protect your cosigner from having to make payments, but unless they also declare bankruptcy, they are liable for any unpaid debts at the end of the process.
Chapter 7 Bankruptcy: Cosigner’s Perspective
From the perspective of your cosigner, perhaps the most challenging type of bankruptcy you can file for is Chapter 7 bankruptcy. When you file for Chapter 7 bankruptcy, your cosigner receives no protection from liability. You are subject to an automatic stay that prevents creditors from contacting you to try to recoup their debt. However, your cosigner does not receive the same benefit, and creditors can take any legal measures they want to get your cosigner to pay off the loan.
Furthermore, once the process is complete, your debt to the creditors may be discharged. However, this does not mean the debt is fully discharged. Your cosigner is still liable for the remaining balance of the loan. Effectively, you can leave your cosigner with few options other than paying the remainder of the balance under whatever terms they can negotiate with the lender.
Chapter 13 Bankruptcy: Cosigner’s Perspective
If you are going to declare bankruptcy, it can be better for your cosigner if you declare Chapter 13 bankruptcy. This typically won’t remove the liability of your cosigner, but it can give them some protection while the process plays out. It should also reduce the total debt that the cosigner is responsible for.
During Chapter 13 bankruptcy, all cosigners can benefit from the same automatic stay that you benefit from. Additionally, any payments you make toward your loans will be deducted from the outstanding balance. Unfortunately, if those payments don’t cover the full loan by the end of the process, your cosigner is still liable for the remaining debt, even though you may have had the debt discharged.
Are you a cosigner for a student loan that is about to be or has been discharged through bankruptcy? You may want to know what your options are for avoiding financial repercussions. Contact my law firm at (407) 749-0080 to discuss your options with an experienced Florida bankruptcy law attorney.
Options for Cosigners Facing Bankruptcy Fallout
The best option for a cosigner is often for the borrower to not declare bankruptcy. However, this is usually only an option if the borrower can receive some other kind of debt relief, like loan forgiveness or a loan repayment plan, that prevents them from needing to file for bankruptcy protection. Cosigners who are concerned that a borrower is considering bankruptcy should discuss these options with the borrower before the bankruptcy process begins. Once it begins, it could be too late to change course.
However, if a borrower has no viable option other than bankruptcy, they may still be able to help their cosigner in some situations. The borrower may be able to help the cosigner after the bankruptcy process is over. While the borrower’s debts are discharged at the end of the bankruptcy, that does not prevent the borrower from willingly repaying any remaining debt, if they are able. Often, creditors will agree to a voluntary payment plan after a bankruptcy, if the debtor seeks one. If, for some reason, the creditor refuses, the borrower can always pay their cosigner directly, which turns the remaining debt into a private loan between individuals.
Declaring student loan bankruptcy as a borrower can leave your cosigner in debt. It’s important to look for ways to help them avoid the fallout of bankruptcy by consulting a bankruptcy attorney.
Cosigner Release: A Possible Solution?
Another potential option is a cosigner release. This is a process where the borrower and the creditor agree to remove the cosigner from the terms of the loan. With this option, the creditor must agree, and some student loan companies don’t even have a process for it. Get it in writing!
If your creditor won’t allow you to release the cosigner, you might try to refinance your loan with a different creditor. It is generally easier to remove a cosigner from loan terms when refinancing.
Discuss Your Case with a Florida Bankruptcy Lawyer Today
Bankruptcy is a difficult financial decision. While it can potentially protect you from further financial challenges, that relief may come at the cost of your cosigner’s finances if not handled correctly. The best way to find out whether bankruptcy is the right solution for you is to consult an experienced bankruptcy lawyer. I can evaluate the details of your situation and recommend a path forward that minimizes the impact for all parties involved.
If you are looking for an effective way to get out of student loan debt or other debt, contact my Florida law firm at (407) 749-0080 to schedule a free consultation today.
Attorney Lewis Roberts
The weight of debts that one cannot pay carries financial stress into every waking moment. It is time for this to end. Lewis Roberts, PA, offers solutions to relieve these worries. With over 20 years of experience in helping individuals overcome the burden of debt, bankruptcy attorney Lewis Roberts presents a range of options tailored to each unique situation. Clients can trust his advice on any matter related to debts, as he identifies appropriate options and explains the paths to debt relief clearly and carefully. This ensures that clients make the best decisions for their future. [ Attorney Bio ]
