Impact on Co-Signers: Filing for Bankruptcy for Credit Card Debt in Florida

Facing credit card debt in Florida? Learn how bankruptcy affects you and your co-signer.

When facing financial hardship, especially credit card debt, filing for bankruptcy can seem like the only way out. In Florida, just like in other places, filing for bankruptcy is a big decision that doesn’t just affect you—it can also impact anyone who co-signed your loans or credit cards. If you’re considering filing for bankruptcy for credit card debt in Florida, it’s important to understand how this will impact your co-signer.  

Quick Summary:

• Filing for bankruptcy for credit card debt in Florida can relieve you of debt, but it does not remove your co-signer’s responsibility. The co-signer is still legally obligated to pay the debt.
• Co-signers may negotiate with creditors, seek legal help, or, in extreme cases, file for bankruptcy themselves to manage their financial burden.
• It’s critical to consult a bankruptcy attorney to understand how Florida laws impact both you and your co-signer. Legal guidance helps you avoid costly mistakes.

What is a Co-Signer?

A co-signer is a person who agrees to take legal responsibility for repaying a loan alongside the primary borrower. By co-signing, they provide an additional guarantee to the lender that the debt will be repaid. Co-signers are often used when the primary borrower has limited credit history or a low credit score and needs help qualifying for a loan

General Effects of Bankruptcy on Co-Signers

When a primary borrower files for bankruptcy, it can have significant impacts on the co-signer:

• The co-signer remains legally responsible for repaying the debt, even if the primary borrower’s obligation is discharged in bankruptcy.
• Creditors may pursue the co-signer for repayment once the primary borrower files for bankruptcy.
• The co-signer’s credit can be negatively affected if the primary borrower stops making payments before or during the bankruptcy process.

The level of protection for co-signers varies depending on the type of bankruptcy filed:

• In Chapter 7 bankruptcy, the borrower’s debt is discharged, but the co-signer is still responsible for the total amount. Creditors can—and likely will—pursue the co-signer to repay the debt.
• In Chapter 13 bankruptcy, co-signers benefit from a “co-debtor stay,” which temporarily stops creditors from going after the co-signer while the borrower follows a repayment plan. However, if the borrower fails to make payments, the co-signer can still be liable for the debt.

Even after the primary borrower’s bankruptcy is complete, the co-signer may still be held responsible for any remaining unpaid debt.

What Can Co-Signers Do?

If you’re the co-signer for someone who’s filing for bankruptcy for credit card debt in Florida, you have options:

1. Negotiate with Creditors: Creditors might agree to settle for a lower amount or create a repayment plan with the co-signer. This can ease the financial load and avoid legal trouble.
2. File for Bankruptcy: If the co-signer is also facing debt problems, they might need to consider filing for bankruptcy. However, this should be the last option after trying other ways to fix their debt.
3. Seek Repayment from the Primary Borrower: If possible, you can request that the borrower continue repaying the debt, even after filing for bankruptcy. This arrangement could help ease your financial burden and maintain your credit standing. While the borrower may no longer be legally obligated after bankruptcy, an informal agreement could benefit both parties and prevent the co-signer from being pursued by creditors. Clear communication and a written repayment plan can help make the process smoother.
4. Get Legal Advice: Talking to a bankruptcy lawyer can help the co-signer understand their rights and responsibilities. A lawyer can also suggest ways to reduce the financial impact.

Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, there is no automatic protection for co-signers. While the primary borrower’s responsibility for the debt may be discharged, the co-signer remains fully liable. This means creditors are free to pursue the co-signer for the full amount owed, often causing financial strain and potential damage to the co-signer’s credit.

Options to Protect Co-Signers in Chapter 7:

• Reaffirming the Debt: The primary borrower may choose to reaffirm the debt, which means they agree to continue being responsible for it despite the bankruptcy discharge. This can help prevent creditors from going after the co-signer, as the borrower voluntarily takes on the obligation again.
• Continuing Voluntary Payments: The borrower may continue to make voluntary payments on the debt, even after it is discharged. While they are not legally required to do so, this can protect the co-signer from creditors’ pursuit.
• Redeeming the Debt: This involves the borrower paying the current value of the collateral securing the loan, usually in a lump sum, which can help eliminate the co-signer’s risk. This is more common in cases where the debt is tied to a specific property, such as a car loan.

Chapter 13 Bankruptcy

In contrast to Chapter 7, Chapter 13 bankruptcy offers co-signers temporary protection through the codebtor stay. This means that creditors are not allowed to pursue the co-signer for repayment while the borrower is actively making payments through a court-approved repayment plan. This protection can last for several years as long as the borrower remains compliant with the payment schedule.

Limitations of Codebtor Stay Protection:

• Temporary Protection: The codebtor stay only protects the co-signer as long as the borrower continues to make payments under the Chapter 13 plan. If the borrower misses payments or the repayment plan fails, creditors can lift the stay and pursue the co-signer for the outstanding debt.
• Non-Consumer Debts: The codebtor stay generally applies to consumer debts like credit card debt or personal loans. It may not extend to business debts or other nonconsumer obligations, leaving co-signers unprotected in those cases.

Legal Considerations in Florida

Filing for bankruptcy for credit card debt in Florida involves specific state laws and exemptions that may differ from those in other states. Florida’s unique bankruptcy laws and exemptions protect the borrower in many ways but often expose the co-signer to financial liability. Co-signers should be aware of the legal landscape in Florida to understand their responsibilities and options when the primary borrower files for bankruptcy.

Florida Bankruptcy Exemptions and Co-Signer Impact

• Homestead Exemption: While the borrower can protect the full equity in their home through Florida’s homestead exemption, this does not protect the co-signer. The co-signer is still responsible for the debt, even if the borrower’s home is protected from creditors.
• Wage Exemption: Florida allows the borrower to exempt wages up to $750 per week if they are the head of the household. However, this wage exemption does not apply to the co-signer, meaning creditors may still pursue the co-signer’s income if the borrower is unable to pay.
• Personal Property Exemptions: While the borrower can protect certain personal property, like furniture and electronics, up to $1,000 (or $4,000 if they don’t claim the homestead exemption), these protections do not extend to the co-signer. The co-signers personal property is at risk if they become liable for the debt.
• Wildcard Exemption: Borrowers in Florida who don’t use the homestead exemption can protect up to $4,000 of their personal property with the wildcard exemption. This does not apply to the co-signer, leaving their assets vulnerable if they are pursued for the debt.
• Pension and Insurance Exemptions: Most of the borrower’s retirement accounts and pension plans are protected in Florida. However, if a co-signer is held responsible for the debt, their retirement accounts and pensions may not be covered under the same exemptions, exposing their savings to creditor claims.
• Public Benefits Exemption: The borrower can protect public benefits like Social Security, veterans’ benefits, and workers’ compensation from creditors in Florida, but the co-signer may not receive the same protection, especially if they are relying on their own benefits for financial support.

Because Florida’s laws and exemptions differ from those of other states, it’s critical to consult a Florida bankruptcy attorney who is familiar with the state’s specific legal requirements. A local attorney can guide you through the bankruptcy process, explain how your co-signer may be affected, and help develop strategies to protect both parties. Legal advice is important for ensuring that you fully understand your rights and responsibilities under Florida law.

Preventative Measures

Before entering into any co-signing agreement, it’s essential to consider the potential risks carefully. 

1. Consider the risks: Co-signing means you’re equally responsible for the debt, even if the borrower defaults or files for bankruptcy.
2. Understand your responsibilities: Know that creditors can come after you if the borrower doesn’t pay.
3. Talk openly: Discuss the borrower’s financial situation and make sure they can handle the debt before agreeing to co-sign.
4. Plan ahead: Set up a contingency plan in case the borrower runs into financial trouble.
5. Be informed: Knowing the risks and responsibilities can help you avoid financial strain as a co-signer.

Should You Talk to a Lawyer About Filing for Bankruptcy for Credit Card Debt in Florida?

Absolutely! Filing for bankruptcy for credit card debt in Florida can be overwhelming, especially if you have a co-signer involved. The laws can be complicated, and the last thing you want to do is make mistakes that could hurt both you and your co-signer financially. That’s why getting legal advice is so important.

A bankruptcy lawyer can help you understand your options, explain how the process works, and make sure you take the right steps to protect yourself and your co-signer. If you’re feeling confused or stressed, don’t hesitate to reach out for help like Tejes Law. We are experienced in guiding people through these tough situations, making it easier to make informed decisions about your financial future.

Don’t wait! Get in touch with us today, and we’ll help you navigate the process.