How Co-signed Debt is Treated When Claiming Bankruptcy
How Does Bankruptcy Impact Co-signed Debts?
A common inquiry amongst cosigners, many wonder what will happen to debt for which they cosigned in the event that they claim bankruptcy in the province of Ontario.
Typically, someone who cosigns debt does so for someone in their family or for a lifelong friend.
The possible ramifications for the borrowing party who is considering filing for bankruptcy is able to add struggles to the other person – both financial and personal.
According to the law, a co-signing party is responsible for the amount owing in the event that the primary debtor cannot repay the amount.
In the event of a bankruptcy for the cosigning party, the primary debtor becomes fully responsible for the debt amount.
Bankruptcy prevents creditors from garnering debts from the filing party.
However, a bank retains the right to collect debt from the other party.
Basically, when there is a debt that was once cosigned and the cosigner files for debt, the other party is solely responsible for issuing payments or discharging the debt entirely.
Some instances are for lines of credit for students, consolidation loans, or lines of credit for a married couple.
Bear in mind that bankruptcy precludes you from exclusion of unsecured debt.
Generally, if you are seeking or considering bankruptcy, you are in a position where you would have otherwise missed a payment.
In these situations, the lender would still have sought the amount from the other party nonetheless.
In order to be responsible, the best course of action is to let the cosigner know that you are struggling financially and considering bankruptcy.
Ideally, you can manage your financial situation without bankruptcy by reaching out to a licensed insolvency trustee and considering a consumer proposal.
This enables you to retake control over your financial wellbeing – keeping you and the cosigner in the best possible situation.