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Co-signer negatively impacted if I file Bankruptcy?


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3/29/2012
Morgan R. Teague, Esq.
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Someone co-signed a car for me. What are my options?
You were in a bind, needed a co-signer and someone (a family member or friend) was willing to co-sign on a vehicle for you. Now you are in financial trouble and will be filing bankruptcy. The last thing you want is to negative effect that person’s credit after they did a favor for you.
The effect on their credit depends greatly on what your intentions are with the vehicle? Are you keeping it and paying it back as you agreed? Are you keeping it and paying it over a longer period of time through a Chapter 13? Are you surrendering the vehicle?
In a Chapter 7, in order to not allow the vehicle loan to negative impact the co-signers credit, either you or the co-signer need to pay the loan as it was originally agreed on the loan agreement. If you surrender the vehicle through the bankruptcy, this makes you no longer legally liable for the debt. However, the co-debtor IS still liable for the debt meaning that the creditor can still go after the co-signer to collect the debt unless the co-debtor also files bankruptcy. Also keep in mind that if the debt is not paid, they can repossess the car.
In a Chapter 13, the effect on the co-debtor is dependent on whether the credit is receiving payments through the Chapter 13 plan. If they are, then the co-debtor will not be negatively affected due to co-debtor stay so long as you are making the Chapter 13 plan payments and the creditor is receiving payment. If however, you are either not listing the creditor for the vehicle as being paid through the plan OR you are not making your Chapter 13 plan payments, the creditor can file a motion for relief from automatic stay as well as relief from co-debtor stay. If this is granted, they can then try to collect from the co-debtor.
Regardless of which route you decide to take, the co-debtors credit report can show that co-debtor (you) filed bankruptcy. In short, liability of co-debtors can be complicated. If you have questions in regards to this, you will want to consult an attorney.


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