A question I frequently get asked is whether filing a bankruptcy case will eliminate the liability of any co-debtors or co-signers on loans or other debts owed by the party filing bankruptcy. The answer is no unless, of course, the debtor filing bankruptcy is doing a 100% repayment plan in a Chapter 13 or Chapter 11 case.
The key for this lies in a common misconception people have about what bankruptcy does. Bankruptcy discharges the party filing bankruptcy from the legal obligation of paying on a given debt; it does not eliminate the debt itself. The debt still exists and the party who is owed the debt cannot pursue recovery of that debt from a party discharged in bankruptcy.
The entire reason for having a co-signer on a loan or credit card application, for example, is so that if the primary obligor defaults on the debt (such as by filing bankruptcy), they can recover against the co-signer.
If filing bankruptcy could discharge the debts of people other than the party filing the bankruptcy, we could all benefit by having one person in the United States file a bankruptcy case, and we’d all be discharged from our debts. That obviously doesn’t make any sense (fun though it may be to imagine).
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Bankruptcy Doesn't Affect Co-Signers' Obligations | Bankruptcy ……
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