Vail A. Kaufman, P.A.
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How Does Personal Bankruptcy Effect Loans I am a Co-Signer on?

Personal Bankruptcy requires the debtor to disclose all of his or her debts and all of his or her assets.

One issue that commonly comes up are loans that the debtor was a co-signer on for a relative or close friend.  

The question is often two-fold: Do I have to disclose as my debt loans I co-signed for and will it have any effect on the credit of the other signing party?

Let's address the first part: do you have an obligation to disclose?

The answer is yes.  You have an obligation to disclose all debts incurred by you. This includes debts that are incurred for the benefit of a third-party.

For example, if you co-signed so your sister could get a car loan and your sister owns, maintains and always drives that vehicle you are still required to list that as a debt on your bankruptcy.  You are equally liable for the debt as your sister in this case.  It doesn't matter what the actual ownership arrangement is for the vehicle.  If your on the loan you have to disclose the debt.

The second part of the issue is how it will affect the other signing party. If you file bankruptcy the other party will find out and receive notice of your bankruptcy filing.  

There is also the possibility that the other party might have the bankruptcy filing appear on their credit report.  You should make sure that the other person is aware of your filing because it can have an impact on them.

Another common issue is whether the other person can keep the vehicle.  Clients often want to make sure that the other party will still be able to drive the vehicle.  The answer to this is typcially yes.

The other party has to continue to make the car payments and keep the loan up to date and the car will generally stay in his or her possession.  

If the car is behind or in danger of being repossessed, the debtor will not be liable for the deficiency, if there is one, that the lender incurs from the repossession and sale of the vehicle.  The other person on the loan will still be liable on the car note and could be sued for the deficiency.  Only the party who filed bankruptcy is discharged from the car note debt.

Ultimately, the best advice is to avoid co-signing for any debt.  There is generally no benefit to the co-signer and you are accepting a significant liability should the other person fail to continue making the payments.  

Feel free to call for a FREE initial consultation in order to discuss your options in personal bankruptcy in greater detail.

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