The decision to file for bankruptcy is often very difficult. There are quite a number of financial considerations to keep in mind, including your ability to borrow and your immediate credit score. Your situation may be serious enough that these things don't matter but there is one other important consideration to make - whether or not you have a cosigner attached to any of your credit accounts.
What is a Cosigner? Cosigners are individuals who sign loan documents in conjunction with the primary borrower. The primary borrower, in many cases, has decent credit but it may not be high enough to warrant a loan on its own. In these situations a borrower may be allowed to list a cosigner, or something who will take responsibility for payment if the borrower should happen to default on his loan. In some cases cosigners are required to remain on the loan documents until it is paid in full while in other cases the cosigner is relieved of his obligations after a set period of time.
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How will Bankruptcy Affect My Cosigners? During a chapter 13 bankruptcy you will be required to pay back a portion of your debts during a specified repayment period. Both you and your cosigner will be relieved of your responsibilities surrounding the debt as long as you make the required payments on time and stick to your repayment schedule. Chapter 7 bankruptcy filings, on the other hand, are not as forgiving. After you file for chapter 7 bankruptcy your debt, or your responsibility for repaying the debt, will be completely discharged. Your cosigner, on the other hand, will still have a responsibility for repayment.
Other Cosigner Considerations Bankruptcy law isn't necessarily cut and dry when it comes to primary lenders versus cosigners. Regardless of the type of filing you make, any payments you make late or miss completely during the proceedings will negatively impact your cosigner's credit. If the loan in default was for a business, neither party will be relieved of responsibility whether you file for chapter 7 or chapter 13.
Maintaining Relationships with Cosigners Chances are you never thought you'd be facing a bankruptcy when you originally asked your cosigner to help you out with your loan. That said, acting as a cosigner should never be considered lightly and your cosigner should have a strong understanding of the legal responsibilities he is taking when he signs your loan documents.
Even still, it is important to communicate with your cosigners throughout your bankruptcy proceedings. Your relationship may become strained, especially if your cosigner is a family member or friend. Keeping the lines of communication open will help you to work together to help remedy the situation on your cosigner's end after your proceedings are finalized.
In the end, it is imperative that you make your bankruptcy decisions based on what is best for your own financial situation. Contact your bankruptcy attorney for help deciding which avenue is right for you and your cosigners.
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