What happens to a student loan co-signer when you file bankruptcy?

Who counts as a co-signer or an endorser?

A co-signer is a person who agrees to repay a loan along with the primary borrower. The CFPB says co-signers are equally responsible for the loan and legally obligated to repay it, and that a borrower may be required to have a co-signer to qualify for a private student loan.3 4

Federal loans use a different word. On a federal parent PLUS loan, an endorser is someone who agrees to repay the loan if the parent borrower does not. A parent with an adverse credit history may be able to get a PLUS loan by obtaining an endorser, and the endorser cannot be the child the loan is for.5

In bankruptcy paperwork, both are codebtors: people who are also liable for a debt of the person filing.6

Does your bankruptcy discharge release your cosigner?

No. A discharge releases the debtor from personal liability for certain debts and bars creditors from collecting those debts from the debtor personally. It does not affect the liability of any other person for the same debt.7 1

With student loans there is a second layer. The loan itself is generally not discharged unless you prove undue hardship in a separate lawsuit inside the bankruptcy case. Without that, you and your co-signer both still owe it after the case.8 9

Even a successful undue hardship case is about your liability. A discharge of your debt does not affect the liability of another person on it, so ask a lawyer what a win would mean for the person who signed with you.1

The lender does not have to come to you first. The Notice to Cosigner required under the FTC's Credit Practices Rule says the creditor can collect from the co-signer without first trying to collect from the borrower, using the same methods, such as suing or garnishing wages, although some states require creditors to try the main borrower first.10

The co-signer's credit is exposed too. The FTC says the creditor can report a cosigned loan as the co-signer's debt, and late payments or a default by the main borrower might show up on the co-signer's credit report.10

Is a co-signer treated differently in Chapter 7 and Chapter 13?

Yes, while the case is open. Once the case is over, the co-signer's liability is the same either way.2 1

The Chapter 13 protection has limits. It does not cover someone who took on the debt in the ordinary course of their business. A creditor can ask the court to lift it, and the court must do so to the extent the co-signer was the one who received the benefit of the loan, the plan proposes not to pay the claim, or the creditor would be irreparably harmed.12

A Chapter 13 plan is also allowed to treat a consumer debt that another individual is liable for differently from other unsecured claims. Whether a plan can use that to pay a co-signed student loan more than other debts depends on your court, so ask a lawyer who files in your district.13

Can you pay off the cosigned loan before you file?

This is where many people get caught. The statement of financial affairs asks whether, within 1 year before filing, you made payments on a debt that benefited an insider, including a debt cosigned by an insider. For an individual, insiders include relatives, such as a parent who co-signed.14 15

The question is there because a trustee can undo certain payments made while insolvent. The usual look-back is 90 days before filing, and it reaches back to one year when the creditor was an insider. The trustee may then recover the money from the person who received it.16 17

Whether a particular payment on a cosigned student loan could be undone depends on the facts and the court, so talk to a lawyer before you pay one down ahead of filing.18

Do you have to list a co-signer in your bankruptcy papers?

Yes. Schedule H, Official Form 106H, is where an individual filer lists codebtors, and the form asks you to be as complete and accurate as possible.6

Listing a co-signer puts on the record that someone else is liable. It does not discharge anything for them.6 1

What can a co-signer or endorser do?

A co-signer's position is their own, and it is worth finding out what it is before a collector calls.

• Read the loan documents. Some private student loans have an option to release the co-signer, with criteria set by the lender or servicer.3 4
• Check federal discharges. A closed school discharge of a Direct Loan ends the obligation of the borrower and of any endorser.19
• Parents who borrowed PLUS loans themselves are borrowers, not co-signers. They can apply for borrower defense if the school's misconduct happened to their child.20
• Get separate advice. The federal courts say people who cannot afford an attorney may qualify for free legal services, and they point to the Legal Services Corporation, which has a search tool for legal aid organizations.18 21

If you are the one filing, telling your co-signer early gives them time to look into these options. Nothing in the bankruptcy rules described here does that for them.