A Chapter 7 bankruptcy discharges most unsecured debts, like credit cards, and allows you to keep secured debts like car loans and home mortgages if you agree to repay the loans. If you have a cosigner on your debts, your cosigner will still be responsible for the debt, despite your bankruptcy filing. When you (the debtor) files for bankruptcy, an automatic stay goes into effect and prohibits creditors from taking any action to collect your debts.
And in a Chapter 13 bankruptcy, there is also a codebtor stay—which means the automatic stay of collection efforts also applies to any codebtors, including cosigners. While the codebtor stay is in place, creditors cannot collect against a cosigner. The codebtor stay continues until the bankruptcy case is over, unless the court lifts the stay at the creditor's request.
In Texas, Chapter 7 bankruptcy allows individuals to discharge most unsecured debts, such as credit card debts, while retaining secured debts like car loans and mortgages, provided they continue to make payments. However, if there is a cosigner on any of the debts, the cosigner remains liable for repayment even after the debtor's discharge. Upon filing for Chapter 7 bankruptcy, an automatic stay is triggered, preventing creditors from pursuing debt collection from the debtor. In contrast, Chapter 13 bankruptcy offers broader protection through the codebtor stay, which extends the automatic stay to cosigners, shielding them from collection actions during the bankruptcy process. This protection lasts until the case concludes or the court permits the creditor to bypass the stay. Both types of bankruptcy are governed by federal law, but Texas state law can influence exemptions and other specific aspects of the bankruptcy process.
