Getting a car loan is how many people can afford to have their own transportation. Yet not everyone has a good enough credit history to secure that loan on their own.
Many of those who would otherwise be turned down for credit ask a family member or close friend to cosign the vehicle loan with them. This can enable them to piggyback on the other person’s good credit to in order to get the vehicle.
What happens if their financial situation deteriorates to a point where they can no longer keep up with all of their debts and need to file for bankruptcy? How will this affect the cosigner on the loan?
You must inform the cosigner
If you file for bankruptcy, that can leave your cosigner on the hook for the outstanding payments on the vehicle. The very reason the lender wanted you to have a cosigner was so they had someone to hold responsible for payment if you were not paying as agreed.
This is true even if you are allowed to keep the car under a Chapter 7 exemption. While you may be freed of the obligation to pay, your cosigner won’t necessarily be. If you file for Chapter 13 and you restructure your vehicle payments, the lender may agree to hold off on collecting from your consigner, provided you abide by the new payment schedule.
To find the best solution for you as well as for your cosigner, it is wise to seek experienced legal guidance as early as possible to understand the options relevant to your unique situation.
