For various reasons, many people find themselves in a situation where they need a family member or loved one to co-sign for them on a certain type of property.  Typically, debtors will have a co-signer on property like a car or a house.  Having a co-signer can help people with little or no credit obtain loans when they otherwise could not.  However, when debtors find themselves in trouble financially, one of the many things they worry about is if their co-signer will be negatively effected.  Quite often, when people file for bankruptcy, they worry that not only will their co-signer be responsible for the property, but that their credit will be negatively effected as well.

When a debtor files for bankruptcy, the effect this has on their co-signer’s credit depends greatly on what the debtor’s intentions are with the type of property in question.  If a debtor has a car with a co-signer, it would depend on a few different scenarios:

– is the debtor keeping the car and paying the loan balance back as agreed?

-is the debtor keeping the car and paying the loan balance over a longer period of time through a Chapter 13 repayment plan?

-is the debtor surrendering the car, or walking away from the loan balance and the vehicle?

-Is the debtor filing a Chapter 7 or a Chapter 13 Bankruptcy?

If the debtor filed a Chapter 7, the only way to make sure that the co-signer is not negatively effected is to ensure that the loan payments are being paid as they were originally agreed on the loan agreement.  This will mean the debtor will most likely need to enter into a reaffirmation agreement, which can incur additional attorney fees.  If the debtor decides to surrender the car through the bankruptcy, this would make the debtor no longer liable for the loan; HOWEVER, the co-signer would still be solely liable for the car loan. This means that they car creditor would be able to pursue collecting the remaining loan balance from the co-signer, unless the co-signer also decided to file for bankruptcy.

In a Chapter 13 bankruptcy, the effect on the co-signer is a bit different than when a debtor files a Chapter 7 bankruptcy.  When a debtor files a Chapter 13 bankruptcy, the co-signer is effected depending on how the car loan provider is paid.  If the car loan creditor is being paid through the debtor’s Chapter 13 plan, the co-signer would not be negatively effected due to protection provided by the automatic stay.  The co-signer will continued to be protected by the automatic stay as long as the debtor continues to make their Chapter 13 plan payments on time. If the debtor decided to pay for the car loan outside of the Chapter 13 plan and/or they are not receiving payments, they can file a “Motion for Relief from Automatic Stay” as well as a “Motion for Relief from Co-Debtor Stay” to attempt to collect from the debtor and co-signer.  This could mean that they would attempt to repossess the car if the motions were granted.

There are a variety of different ways a co-signer can be effected if you decide to file for bankruptcy. If you have any questions or concerns, contact a St. Louis Bankruptcy Attorney Today!