If someone cosigns a loan for you, that person is responsible for paying the loan if you default. The cosigner is someone who has better credit than you and is a reliable source for the lender to consider when they decide to give you the loan. If you file for bankruptcy and you have a cosigned loan, you need to be aware of what will happen. The following are some things you need to know:
How Does Bankruptcy Impact a Cosigned Loan?
Bankruptcy is an option to deal with your debt if you cannot make your payments. However, you have to also consider what happens to your cosigner. One of the first things that happen is the bankruptcy trustee will issue a court order to your creditors. This is to stop all the collection contact you by your creditors. This is great for you, but it does not count for your cosigner. He or she will continue to receive collection communication about the past-due loan. This is both frustrating and upsetting for your cosigner.
How Can You Help Your Cosigner?
Since your cosigner once helped you in a time of need, it is ideal if you can help in this situation. The first thing is to consider filing for Chapter 13 bankruptcy, which allows you to work out a reasonable payment plan over time to pay your debt. If you do not qualify for Chapter 13, you can reaffirm your debt in a Chapter 7 bankruptcy. Any debt you reaffirm is left out of your bankruptcy, and you continue to make the regular payments on it yourself. You can reaffirm the cosigned loan and make payments on it yourself to stop the communication with your cosigner. If you do not reaffirm the debt, you can have the loan removed from your credit and make the cosigner whole. Once you have your finances reorganized, you should be able to make room in your budget to make the remaining payments. However, you will have to list the cosigner on the bankruptcy.
One thing you must know is the lender has the right to ask the court to pursue the cosigner if the bankruptcy does not cover the debt. You will have to follow the rules of your bankruptcy to clear your cosigner. This is the best thing to do if you want to continue to have a positive relationship with your cosigner in the future. Contact a lawyer who offers bankruptcy attorney services to learn more.
Share17 December 2019
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