17 Mar When Cosigners File For Bankruptcy
When thinking about bankruptcy, you may be worried about that loan you cosigned. Will it hinder your chances at success?
People looking to file for bankruptcy are often worried about debt for which someone else has cosigned. The most likely situation is a car or mortgage, where the debtor has asked a friend or relative to guarantee payment.
Will this cosigned debt hinder your bankruptcy? First, we need to understand the process of how and what a co-signed loan really is.
When you co-sign on a debt, you’re guaranteeing payment if the other person doesn’t pay. The lender checks both the primary borrower’s and the co-signer’s credit before making the loan. Consequently, if the primary borrower doesn’t pay then you’ve got to step up and cut a check or your credit will be affected as well.
If we’re talking about a secured loan like a car or real estate, a repossession or foreclosure will show up on your credit report. This will likely hurt you if you’re looking to get a loan in your name for another purpose.
But the fact that someone has cosigned for your loan does not make it more difficult for you to file for bankruptcy. Though the other person will be required to pay the debt after your case is completed, you can always voluntarily make the payments on your own.
Remember, you are allowed to voluntarily repay a debt after bankruptcy – the case eliminatesyour legal obligationto do so.
Your bankruptcy won’t impact their credit score. If the loan has gone past due, that’s going to harm them whether you file bankruptcy or not. Therefore, the best move would be to sit down with the other signer as soon as you know you’re going to fall behind on payments. Be honest, let him or her know your plan, and above all – apologize for getting them into this mess.
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