If I File Bankruptcy, How Will it Affect a Co-signer?

First, it’s important to know a couple of concepts. When you file either Chapter 7 or 13 and you have a co-signer on a specific debt, your bankruptcy filing will not discharge (wipe out) your co-signor’s liability. If you receive a bankruptcy discharge order, then only your liability is wiped out. Moreover, co-signed loans are set up by banks and credit card companies in such a way that both you and your co-signer are fully liable for the debt. In other words, there’s no 50-50 per cent liability.

So, let’s say that John files a Chapter 7 bankruptcy case and he’s got a vehicle loan that he co-signed with his brother who makes all the car payments. Will John’s bankruptcy case affect his brother? It will not negatively affect the brother’s credit rating; in other words, John is filing bankruptcy under his own Social Security number and not the brother’s. However, the brother should be careful about a couple of things. Namely, if he is accustomed to paying the car loan online, then the car lender may have shut down the online bill-paying access to this loan. Additionally, the car lender might temporarily stop sending out invoices or statements. When banks and lenders receive bankruptcy case filing notices, they notate the appropriate credit account as being in bankruptcy. Therefore, the brother should contact the lender and simply remind them that he wasn’t the one who filed bankruptcy. In an extreme case, just have John’s bankruptcy attorney write a letter to the lender to remind them as well. The bottom line is that if John’s brother continues to make the monthly payments, then it is highly unlikely that either the Bankruptcy Court or the car lender is going to object.

Okay, let’s change the facts. Let’s say that John has a credit card debt in which his mother is a co-signer. If John files bankruptcy, then the credit card company will certainly expect his mother to make payments. And John should certainly alert his mother to the fact that he is intending to file bankruptcy.

That’s all for now. I’d love to hear your comments!

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