How Will My Impending Bankruptcy Affect My Loan Co-Signers
How will my Impending Bankruptcy Affect my Loan Co-signers
Traditionally, a lender will not approach the co-signer for repayment IF the court already has a repayment agreement in place.
Two years ago I lost my job and started having financial difficulties. I needed a car to start looking for work. My mother was kind enough to co-sign a car loan for me. Unfortunately, I have not found stable work and my debt has increased. I cannot afford to pay the debt so I started looking into filing bankruptcy. I want to include the car because I can't afford the payments. How will this affect my mother? She is retired and has a part-time job.
This is a tough situation. Typically, when a borrower requires a co-signer, there is a history of poor credit or in some cases, a lack of credit history; nonetheless, when someone co-signs a loan, they accept 100% of the risk and responsibility if the borrower defaults on the payments. For these reasons, I rarely recommend co-signing a loan; however, your concern for your mother's financial situation is to be commended.
The short answer to your question is, yes, including the car will impact your mother. If you file a Chapter 7 bankruptcy, the lender will no longer pursue you for the entirety of the debt; they will then pursue your mother for payment of the debt. She would be responsible for making the monthly loan payments; if she is unable to do so and the car is repossessed, she could be sued for the deficiency balance. Based on the information you provided, this could cause a serious hardship for your mom.
The other alternative would be for you to investigate the possibility of a Chapter 13 bankruptcy, in which there would be a reorganization of the debt. Under this plan, your attorney and the court would establish a repayment plan for the car that could be more affordable for you. Traditionally, the lender will not approach the co-signer for repayment as the court already has a repayment agreement in place.
It is absolutely imperative that you speak with a bankruptcy attorney before filing either chapter of bankruptcy. The attorney would be best suited to explain all of the legal and financial ramifications you and your mom may face. Also, feel free to contact one of our certified counselors at 1-800-992-4557, who can take a look at your income and expenses and provide recommendations as to how you can repay your outstanding debt.
Kim Cole is the Education Outreach Coordinator for Navicore Solutions. Kim provides financial education workshops and seminars to communities. Readers can submit general questions relating to personal finance, credit scoring, debt management, student loans, home finance or bankruptcy which may be highlighted in the next month's edition. All identifying information will be kept anonymous.
Please send your questions via email to DearKim@navicoresolutions.org