Can a Loan Guarantor be pursued for loans that were discharged in the Borrower’s Bankruptcy case?

However, the rules regarding whether a loan guarantor can be pursued for discharged debts can be complex and depend on the type of bankruptcy, the nature of the debt, and the specific terms of the loan agreement.

Let’s explore this topic in depth:

1. Chapter 7 vs. Chapter 13 Bankruptcy:
   • Chapter 7 Bankruptcy: In Chapter 7 bankruptcy, the debtor’s non-exempt assets are liquidated to pay off their creditors, and any remaining eligible debts are discharged. This type of bankruptcy often results in the complete discharge of unsecured debts.
   • Chapter 13 Bankruptcy: In Chapter 13 bankruptcy, the debtor creates a repayment plan to pay off all or a portion of their debts over a specified period, typically three to five years. At the end of the repayment plan, any remaining eligible debts are discharged.
2. The Role of a Loan Guarantor:
   • A loan guarantor is someone who agrees to pay the debt on behalf of the borrower if the borrower fails to make payments as agreed. The guarantor essentially acts as a co-signer, providing a form of security to the lender.
3. Automatic Stay:
   • When a borrower files for bankruptcy, an automatic stay is put in place, which halts all collection efforts by creditors, including efforts to collect from guarantors.
4. Discharge of Debts in Bankruptcy:
   • Discharge in bankruptcy means that the debtor is legally released from the obligation to repay certain debts. The discharge typically applies to most unsecured debts, which would include credit card debt, medical bills, and personal loans.
5. Exceptions to Discharge for Certain Debts:
   • There are exceptions to the discharge of debts in bankruptcy. Certain types of debts, such as student loans, child support, alimony, and some tax debts, are usually not dischargeable in bankruptcy. If a loan falls into one of these non-dischargeable categories, the guarantor may still be on the hook for the debt.
6. Effect on Loan Guarantors:
   • When the primary borrower’s debts are discharged in bankruptcy, the guarantor’s liability depends on several factors:
     • Type of Bankruptcy: In Chapter 7 bankruptcy, the guarantor is generally still liable for the debt because the borrower’s obligation to pay is eliminated, but the guarantor’s obligation remains. In Chapter 13, the guarantor may be liable if the repayment plan does not cover the entire debt.
     • Loan Agreement Terms: The specific terms of the loan agreement and any guarantee agreement between the guarantor and the lender play a critical role. If the loan agreement specifies that the guarantor is still responsible even if the borrower’s debts are discharged, the guarantor can be pursued.
7. Reaffirmation Agreement:
   • In some cases, the borrower may choose to reaffirm a specific debt in bankruptcy. This means they agree to continue paying that particular debt even after bankruptcy. If a reaffirmation agreement is in place, both the borrower and the guarantor can be pursued for that debt.
8. Legal Consultation:
   • The outcome regarding the liability of a guarantor for discharged debts can be complex and highly dependent on individual circumstances, loan agreements, and local bankruptcy laws. If you’re a guarantor or dealing with such a situation, it’s essential to consult with a qualified bankruptcy attorney to understand your specific obligations and rights.
     

In summary, whether a loan guarantor can be pursued for loans that were discharged in the borrower’s bankruptcy case depends on various factors, including the type of bankruptcy, the nature of the debt, the terms of the loan agreement, and whether a reaffirmation agreement is in place. Legal advice is essential to navigate these complex issues.