Cosigners And Bankruptcy: Can Your Bankruptcy Impact Someone Else?
When someone cosigns a loan, they must take responsibility in the event the loan defaults. The cosigner is a person with good credit and is seen as a reliable source of repayment by the lender. A cosigner can be the key to getting a loan if you have poor credit. If you intend to file for bankruptcy and you have a cosigned loan, you should know what happens during the process. Your bankruptcy can have a major impact on a cosigner. Here is what you need to know.
What Happens to Your Cosigner If You File for Bankruptcy?
People generally opt to file for bankruptcy when they can no longer handle their debt repayments. If you have a cosigner, you have an extra person to worry about during the process. At the beginning of bankruptcy, the trustee will send a court order to all your creditors to end any collection attempts against you. However, the creditors will continue to contact your cosigner because they are not filing the bankruptcy.
Can You Help the Cosigner?
Your cosigner helped you when you needed a financial leg up. In return, you should do anything possible to help ease the frustration of your cosigner. One thing you can do is file Chapter 13 bankruptcy. This process lets you develop a more reasonable repayment plan for your debt instead of wiping it out completely. This way, you can continue to pay the loan cosigned by someone else. If you cannot file for Chapter 13, you have to file for Chapter 7 bankruptcy, in which your secured debts are reaffirmed. However, you do not have to reaffirm all your debt. To help your cosigner, you can reaffirm the cosigned debt and continue to make the payments so it does not continue to impact your cosigner. After you reaffirm your debt, you should be able to make room in your budget to help you make your cosigned debt payments more easily.
The lender of the cosigned debt does have the right to ask the bankruptcy court to go after the cosigner if your bankruptcy does not include the debt, especially if you do not make the payments. Your bankruptcy attorney will provide you with the rules of your chosen bankruptcy option. You should do anything you can do to help clear the debt from your cosigner, as it can also have a terrible impact on their credit score. This can cause major problems for your cosigner in a variety of ways, so be sure to do everything you can to clear the debt as soon as you can.
For more information, contact a bankruptcy attorney service.