Co-signed loans arise when a lending institution does not feel that a person should have sole financial responsibility and requires a more creditworthy person to sign the loan agreement. If you can no longer afford your co-signed loan or are going through the bankruptcy process and are confused about how the process affects your loan, you likely feel confused and uncertain about how to proceed. One of the best steps that you can take in this situation is to obtain the assistance of a knowledgeable bankruptcy attorney.
What to Expect if You Default on a Co-Signed Loan
The role of a co-signer is to make sure that your loans are repaid. Parents co-sign loans for their children because young adults often have not yet built sufficient credit. In other situations, an adult will co-sign other adult’s loans, which can create complications if a default occurs. In these situations, the financial institution will often attempt to force the co-signer to take over payments.
The Effect of Bankruptcy
Filing for bankruptcy results in an automatic stay, which is a type of court order directing creditors to stop attempting to collect debts from a person. As a result, declaring bankruptcy offers a form of relief but does not extend to the co-signer of a loan. As a result, in these cases, financial institutions that are often notified of an automatic stay will try to collect from the loan’s co-signer instead. Because forcing a co-signer to pay a loan can result in strained friendships, many people avoid declaring bankruptcy because they fear that the co-signer will inevitably be forced to pay for the amount.
Options for Relieving a Co-Signer
If you file for bankruptcy but do not want to leave a co-signer vulnerable to efforts by collection agencies, there are some available options which include the following:
- File for Chapter 13 Bankruptcy. This type of bankruptcy allows you to establish a repayment plan over a three-to-five-year period so that you can pay off the debts you owe.
- Pay off the Debt. A Chapter 7 bankruptcy will discharge a debt, which means you can still pay on the amount. Many people actually discover that the bankruptcy process helps to make more money available to pay their loan.
- Reaffirm your Debt. If you cannot file for Chapter 13 bankruptcy, you can still keep your debt in a Chapter 7 bankruptcy by reaffirming the debt. This process involving giving up your ability to discharge a loan in bankruptcy, which means that you will remain responsible for paying the amount.
Obtain the Services of an Experienced Bankruptcy Attorney
If you or a loved one is debating going through the bankruptcy process, it is a wise idea to speak with a skilled attorney like Jim A Lyon, who has assisted many people in similar situations. During his several decades of practice, attorney Lyon gained substantial experience as a seasoned attorney who knows how to fight and win even the toughest of cases.