Co-signed a student loan for a friend. The friend is now in financial trouble and is declaring Chapter 7. It is clear that going through Chapter 7 will not discharge a student loan without an Adversary Proceeding (AP) showing undue hardship (the "Brunner Test"). However, can the student be discharged from any legal liability to the co-signer of the student loan, as part the normal Chapter 7, w/o an AP. The student will still be liable to the creditor, but if he makes no student loan payments the creditor will come after the co-signer. If the co-signer has no legal right to sue the student for payments the cosigner made ( to keep the loan from going in default) then he is totally stuck. (It is assumed that the co-signer has a case against the student if Chapter 7 didn't eliminate it).
"Will the chapter 7 protect a student, who has a student loan, from any legal liability to the co-signer of the loan." -- In my non-researched opinion, no. If the debt remains an obligation of the debtor because it is nondischargeable the debtor remains liable to the co-debtor under common law indemnification principles.
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Chapter 7 Bankruptcy Attorney
I agree with Mr. Daymude's answer. I also will add that the student loan creditor may come after the co-signor of the loan should it not be able to collect from the debtor that benefited from the loan. Filing bankruptcy by either co-signors of the student loan will not eliminate the debt they own to the student loan creditor and will not eliminate any obligation one has to the other co-signor.
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I agree with my colleagues.
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