If you are considering bankruptcy and have debt that was co-signed by another person, then you have few options to protect that person. Unfortunately, in a typical chapter 7 case the automatic stay only protects you from creditors, not your co-signer. This means that while you will personally be relieved from liability, your co-signer will not.
What Can You Do?
There is the option to file for a chapter 13 "wage earners" bankruptcy if you are employed and have enough income to get into a payment plan. In this case, the automatic stay will extend to co-signers under one important condition: The plan must account for that debt to be repaid in full.
Typically, each creditor must be treated equally in a chapter 13 plan, but in the case of co-signed debt, a modification to the plan can sometimes be made to repay that one creditor in full, while the other creditors will only be repaid some portion, based on the bankruptcy petitioners net disposable income. Usually, creditors are repaid anywhere from 5-50% of the debt owed.
See this blog post on bankruptcylawnetwork.com for more information on how it works.
If you are thinking about bankruptcy, check out this guide to bankruptcy on BankruptcyLawFirms.com
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