It’s common for individuals who are having financial trouble – or who have an insufficient credit history – to ask a friend, family member, or colleague to co-sign a loan. It’s also common for married couples and family members to be joint account holders on checking and savings accounts. But when someone who is financially healthy is a co-signer or joint account holder with a person who files for bankruptcy, it puts the financially healthy person in a precarious position. Here’s what you need to know about protecting yourself in this type of situation.

• Co-Signer and Joint Account Holder Liability

When you co-sign a loan or have a joint credit card account, you are agreeing to be responsible for the debt if the primary borrower defaults. If that person files for bankruptcy, they are automatically protected from creditors, but you won’t be. You will have full liability for the outstanding debt.

• Chapter 7 vs Chapter 13 Bankruptcy

If the person you’ve co-signed for files for bankruptcy under Chapter 7, the debt may be discharged for them but not for you, and the creditor can pursue you for the full amount of the debt. If they file under Chapter 13, you may have some protection, as a co-debtor stay may be implemented pending the repayment plan that is agreed to. Still, if the debtor fails to make their payments, you will be responsible.

• Credit Score Impact

A co-signer’s credit score will not be impacted by the other individual’s bankruptcy filing unless they fail to make payments.

If you find yourself in this situation, there are certain steps you can take to protect yourself. You can try negotiating with the creditor to restructure the debt or refinance it into a single loan to reduce the financial burden. You can pay off the debt to avoid collection actions. Or, in some cases, you can request a co-signer release to remove yourself from responsibility after the primary borrower has made some on-time payments.

You can be put in an uncomfortable and often untenable position when a person who has asked you to co-sign ends up filing for bankruptcy. To understand your legal options and responsibilities, contact an experienced attorney who can help you manage this difficult situation.