Any recourse for cosigners?

Question

I received notice from a credit company that the person I cosigned a loan for has filed chapter 13.  There is a stay in place, but once that stay is removed I will be obligated to pay off the remainder of the loan.  Is there any way to avoid this debt?

Martha Warriner Jarrett · Answer

In a chapter 13, the debtor is required to pay some or all of their debts over a 3 to 5-year period. So you should check out the proposed plan to see what percentage of the debt you cosigned on will be paid. If you are still left being held responsible for some portion of the obligation, there is no way to force the debtor to pay the balance of the debt or to reimburse you for anything you end up paying. However, there is nothing that prevents the person from reaffirming the obligation and paying it in full, either by paying the creditor directly or reimbursing you for anything you pay on their behalf.

James L. Arrasmith · Answer

As a cosigner, you are legally obligated to repay the loan if the primary borrower defaults or cannot make payments, as is the case in a Chapter 13 bankruptcy filing. However, there are a few steps you can take to manage or potentially avoid this debt. 
 
Firstly, communicate with the lender to explore any options they might offer to cosigners in this situation. Some lenders may be willing to negotiate a modified repayment plan that could lower your payments or extend the loan term to make it more manageable for you. 
 
Secondly, if the loan agreement includes a clause for the release of a cosigner under certain conditions, review those conditions carefully to see if you can qualify for a release from the loan obligation. This is not common, but it's worth checking your loan documents. 
 
You might also consider seeking legal advice to understand all available options and any potential defenses you might have. An attorney can review the specifics of your situation to identify any possible strategies for reducing your liability or negotiating with the creditor. 
 
Lastly, if repayment becomes unavoidable, look into personal finance strategies to manage the loan payment effectively, such as budget adjustments, debt consolidation, or seeking a personal loan with more favorable terms to pay off the cosigned loan. 
 
Navigating cosigner responsibilities after a Chapter 13 filing is complex, and taking proactive steps to address the situation is crucial. Consulting with an attorney can provide clarity and help you make informed decisions about how to proceed.

Q: Any recourse for cosigners?