Sometimes we all need some extra help. For individuals looking to rebuild credit, a vehicle loan often requires a co-signer. While the hope is that your situation has changed enough that eventually you won’t need to depend on someone else’s credit, that is not always the case. When struggles continue past a cosigned loan, and you consider bankruptcy, remember that your cosigners are on the hook for your loan, no matter what.
The reason a co-signer works so well when seeking a line of credit or a loan is because a co-signer is agreeing to be legally responsible for the loan in the event you are not. If you hit hard times and are forced to file bankruptcy, just how hard your co-signer will be hit depends on the type of bankruptcy you file.
Chapter 7 bankruptcy essentially eliminates your debt. If you are including a line of credit that someone else co-signed for, you may not owe the debt but they will. This is unless, of course, they are your spouse, and you are filing jointly. If you reaffirm the debt, it is still your responsibility to pay it. Likewise in a Chapter 13 bankruptcy, your debt isn’t simply wiped out, it is rearranged, and you have a court ordered repayment plan. During this repayment, your co-signers are kept safe under the codebtor stay. So long as you keep up your court ordered payments your co-signer is in the clear.
While it is not your intent to damage the financial well-being or reputation of a co-signer, sometimes our financial struggle becomes overwhelming, and bankruptcy is our only option. If you are considering bankruptcy, discussing it with a trusted attorney may help. Knowing your rights and responsibilities can help keep you and your co-signers safe.