Loan cosigners should know that if the primary borrower does not pay the debt and files for bankruptcy, the cosigner will be responsible for the debt. Worse than that, if payments were made on the loan during the year before the primary borrower file for bankruptcy, the lender may have to turn over the payments made to the bankruptcy court to be distributed among all of the borrowers’ creditors. The ability of the bankruptcy trustee to “reverse” the transfer of money or property depends on who the creditor is, how much the creditor was paid, and when the payments were made.
As part of your bankruptcy paperwork when you file your case, you must file a Schedule H, which lists co-debtors, or co-borrowers. This includes cosigners. The bankruptcy court will use this information to notify your cosigner that you have filed bankruptcy. For more information, please call our office to schedule an appointment. Choosing the right bankruptcy is important and every situation is unique. Our New Jersey bankruptcy lawyers can assess your individual situation and discuss which options will be best for you.
HINT: An “avoidable preference” is a transaction made before filing for bankruptcy, which prefers one creditor over others that are similarly situated.