Co-signed loans are ones where the lending institution did not feel you should have sole financial responsibility, so they required you to have a more creditworthy person sign the loan agreement with you. A co-signer vouches for you, and is essentially on the hook to repay the loan if you default. If it looks like you can no longer afford your co-signed loan, you may want to contact a Cleveland bankruptcy lawyer to see what can be done. Cleveland Bankruptcy Attorneys has experience helping people and their co-signers figure out what to do about co-signed loan debt. Call us today at (216) 586-6600 to make an appointment.
What Happens If I Default On a Co-Signed Loan?
A co-signer’s job is to ensure your loan gets repaid. Parents often co-sign car or financial aid loans for their kids because teenagers haven’t built much credit yet. But sometimes an adult will co-sign another adult’s loan, which can be tricky. If you have a loan that has been co-signed and you find you’re unable to make the payments, the financial institution will go after your co-signer to take over payments. In this instance, your relationship with your co-signer will likely become strained.
Can Filing For Bankruptcy Stop Collections On The Loan?
Filing for bankruptcy issues an automatic stay, which is a court order directing your creditors to stop contacting you and attempting to collect on debts you owe while your case is in bankruptcy court. While this provides measurable relief for you, it does not extend to your co-signer. Financial institutions who receive the automatic stay will simply turn to your co-signer for the amount due.
Options for Relieving a Co-Signer
If you’re going to file for bankruptcy but you don’t want to stick your co-signer with your loan, there are a few options to consider:
- File for Chapter 13 bankruptcy. A Chapter 13 bankruptcy allows you to establish an affordable repayment plan over a three to five-year span, so you can pay off the debts you owe and not be completely strapped for cash.
- Reaffirm your debt. If you cannot file for Chapter 13, you can still keep your debt in a Chapter 7 bankruptcy by reaffirming the debt. Essentially, this means you give up the ability to discharge the loan in your Chapter 7 bankruptcy, which keeps you on the hook for paying it.
- Pay off the debt. Even though a Chapter 7 bankruptcy will discharge the debt, you can still pay on it. In fact, you should find that continuing to make payments on the loan becomes easier; after your bankruptcy discharge is awarded, you’ll have more money available to put towards the loan.
Talk to a Cleveland Bankruptcy Attorneys
Trying to file for bankruptcy when you have a co-signed loan is a tricky situation. You can’t afford your bills, but you also don’t want to ruin your relationship with your co-signer. The bankruptcy attorneys at Cleveland Bankruptcy Attorneys understand the bind you’re in. To discuss your debt relief options, schedule a free consultation by phone at (216) 586-6600.