This is a very common question and causes significant concern when people have co-signed debts and are considering claiming bankruptcy in Ontario. Normally, the co-signer is a family member or a close friend. The potential impact of the borrower deciding to file personal bankruptcy can put an added strain on the relationship above those already felt by dealing with the underlying debt.
In law, a co-signer agrees to be responsible for the debt if the primary lender cannot pay the debt.
A bankruptcy restricts creditors from collecting from primary lenders but it does not change the bank’s right to collect against the co-signer. Therefore, the co-signer will be held responsible for making payments or for paying out the loan in full.
Common examples where the bank requires a co-signer or joint lender are: consolidation loans, student lines of credit, and lines of credit for married couples.
Unfortunately you cannot voluntarily exclude an unsecured debt from your bankruptcy. Even if you could it may not be the wisest course of action. If you are struggling with debt repayment, it is more than likely that you will begin to miss payment anyway, potentially triggering your lender to begin the process of seeking payment from your co-signer.
Your best option is to advise your co-signer ahead of time so they are not unduly surprised by a call from your lender. Correct your financial issues and then work towards correcting your relationship.