Major life events can trigger a bankruptcy. Divorce, illness, or losing a job may push people to the brink of financial ruin. Bankruptcy offers a strategic path out of financial disaster. Individuals, spouses and corporations can file for bankruptcy. Federal courts handle all bankruptcy cases in accordance with the US Bankruptcy Code.
Bankruptcy Classifications
Chapter 7
Bankruptcy falls into two primary classifications for individuals: Chapter 7 bankruptcy and Chapter 13 bankruptcy. The former, Chapter 7 bankruptcy, wipes out certain debts completely, giving debtors the chance to start anew, without the burden of repaying debts.
Be aware that Chapter 7 bankruptcy discharges only certain forms of debt. Such debt includes medical bills, credit card balances, and personal loans. Non-dischargeable debt falls under such categories as income tax acquired over the past three years or more, student loan debt, and child or spousal support.
Chapter 13
Chapter 13 bankruptcy requires the debtor to repay a portion of the incurred debt. The debtor has an obligation to develop a repayment plan and to repay monetary dues over the course of 3 to 5 years. Factors that affect the minimum payment amounts include how much income is earned, the value of the individual’s nonexempt property and the sum of money owed.
Debt limits exist in Chapter 13 bankruptcy cases. Those eligible for filing for Chapter 13 bankruptcy cannot have over $1,081,400 (figure is as of 2018) in secured debt. Secured debts include any purchased items, like boats, houses and vehicles, that are linked to property.
The Role of the Cosigner
Qualifying for a loan may require a cosigner. The critical role of the cosigner is to repay any part of the debt that goes unpaid. First time borrowers, those with poor credit histories and people who are starting new businesses almost always experience obstacles when attempting to secure funding. Loans are acquired more readily when a cosigner signs the dotted line—giving the lender assurance that the loan will be repaid. Cosigners are those who earn higher incomes, who possess good credit and who own greater assets.
Unsecured loans are not associated with collateral, such as property. Examples of unsecured loans are credit card debt, personal loans, and student loans. Unsecured loans pose as a greater risk for lenders. The increased risk prompts the lender to require a cosigner prior to offering borrowers an unsecured loan.
In the unfortunate event a debtor must file for bankruptcy, the part of the cosigner comes in. Cosigners are just as affected by a bankruptcy as the debtor. A cosigner is legally the co-debtor and is responsible for repaying the debt as the borrower. Should the amount of debt owed exceed what a cosigner is able to repay, as in the worst scenario, the cosigner may also struggle with the decision to file for bankruptcy.
Cosigner Protection
Chapter 13 Bankruptcy—Codebtor Stay
A borrower can make efforts to protect a cosigner by filing for Chapter 13 bankruptcy. Cosigner debts are often discharged under Chapter 13 bankruptcy proceedings. Chapter 13 bankruptcy allows the debtor to repay the loan, thereby protecting the cosigner.
The Chapter 13 codebtor stay provides protection to the cosigner. Once bankruptcy is filed, creditors cannot take actions to recoup the loan. Simultaneously, a stay is also placed on the cosigner in a Chapter 13 bankruptcy filing. The codebtor stay prevents creditors from collecting from the cosigner. The cosigner is protected until the courts reach a final decision in the bankruptcy case.
Under certain circumstances, creditors can request the courts to lift the codebtor stay. Instances when a lender can request the courts to remove the codebtor stay include when the cosigner benefits from the debt instead of the creditor, when the creditor’s interests are harmed if the codebtor stay remains in effect and when the debtor, under the Chapter 13 bankruptcy repayment plan, fails to repay the debt.
Cosigners can qualify for a codebtor stay: The cosigner must be an individual, not a corporation; and, the debt for which a cosigner signed should be consumer debt and unrelated to business debt.
Failing to repay the debt under a Chapter 13 bankruptcy could jeopardize the cosigner’s protection under the codebtor stay, especially if the debt is not discharged. In such a case, the creditor has the right to pursue the outstanding debt from the cosigner.
Chapter 7 Bankruptcy—Repaying & Reaffirming Debt
When filing a Chapter 7 bankruptcy, all collections against the filer stop. Collectors, however, are free to collect the unpaid debts from the cosigner. A debtor can protect the cosigner by voluntarily paying off the debt in the event of a Chapter 7 discharge.
Reaffirming debt in a Chapter 7 bankruptcy also protects the cosigner. By once again becoming liable for the original debt before the debt is discharged, the cosigner can no longer be pursed for the money owed. Possessions such as jewelry, computers and furniture can be returned if the purchase cost remains unpaid.
Work with Bankruptcy Attorneys
In the unforeseen event you file for bankruptcy, either Chapter 7 or Chapter 13, make sure you are represented by highly qualified, experienced bankruptcy attorneys. Financial interests are heavily at stake. The bankruptcy attorneys at Berry K. Tucker & Associates, Ltd. are skilled negotiators, who will help you under numerous Chapter 7 bankruptcy scenarios, including vehicle repossession, medical debt, credit card debt, and home foreclosure judgements.
Our qualified team of bankruptcy lawyers will also see you through Chapter 13 bankruptcy cases, assisting you with developing a workable repayment plan.
Knowledgeable in all current Illinois laws surrounding bankruptcy, the attorneys at Berry K. Tucker & Associates, Ltd. will expertly guide you through the complicated bankruptcy process when you elect to file. Our team of bankruptcy lawyers offer professional, legal advice that will help you navigate the complex bankruptcy filing proceedings.
Schedule a Consultation
Berry K. Tucker & Associates, Ltd. is committed to serving the legal needs of individuals who are considering filing for bankruptcy and who reside in Oak Lawn, IL or its surrounding communities.
To schedule a consultation with one of our experienced attorneys, give us a call at (708) 425-9530.
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