Co signer on lease that went under

Your parents have a very difficult situation without a simple solution. It may require them to consult a bankruptcy attorney so they can save the maximum amount permitted under State or Federal law. They may wish to see if there were any technicalities which would render their guaranty of no value. Remember also that the landlord has a duty to "mitigate damages" by re-leasing as soon as possible.

In general, when individuals sign a Lease Guaranty, they are promising the Landlord that they will pay all rents and obligations under the Lease if the Tenants fail to do so.  That promise remains binding on those who guaranteed the obligations even if the Tenants go out of business or file bankruptcy; it is the Landlord's incentive to take the risks involved in entering into to the Lease.  Your parents must settle with the Landlord, and will likely need the assistance of a lawyer; the Landlord has the right to sue for its losses, and can usually win damages and legal costs.