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Can You Be Hurt When A Co-Signer Files For Bankruptcy?

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Does my spouse have to file bankruptcy if I do?”

Sometimes when people make a major purchase they may be required to have someone, usually a friend or family member, co-sign on the loan. This happens when one person lacks the credit history necessary to get the loan on his or her own. By having a second person sign the loan it can ensure that interest rates remain more reasonable. While this may work well in most cases, what happens if the co-signer files for bankruptcy? How does a co-signer’s bankruptcy impact the person who was the primary borrower? Keep reading to find out.

 

Example

 

Sign Here Tab Charlotte Bankruptcy Lawyer North Carolina Chapter 13 AttorneyBy way of example, let’s pretend that two friends, A and B, signed the same loan. A wanted a new car but couldn’t get one at a reasonable interest rate without B’s help. Everything was going smoothly until B filed for bankruptcy. So what happens to A?

Because A is the primary borrower and likely has his name and his name only on the title to the car, then A will be left to pay the remaining balance on his own. When the loan is ultimately paid off the car will be titled to him and he will own it free and clear.

 

Though this situation ends well for A, it is not always guaranteed to work smoothly. That’s because the creditor who made the loan does not care about whether A or B is the primary borrower, both people are equally on the hook for the full amount of the loan. However, when B decided to file bankruptcy there was a breach of the loan agreement with the creditor and the creditor now only has A on the hook to make payments on the vehicle.

 

Refinance quickly

 

If a co-signer files for bankruptcy it is important that the primary borrower try and refinance the remaining balance of the loan immediately. The benefit of refinancing is that it will pay off the first loan and prevent the creditor from finding the borrower in default due to the co-signer’s bankruptcy.

 

So can a co-signer’s bankruptcy impact your credit?

 

A co-signer’s bankruptcy filing should have no impact on your credit score. However, there are unfortunately cases where the bankruptcy might be noted on the other person’s credit history. If that happens, the person who did not file bankruptcy needs to file dispute letters with each of the three credit bureaus and follow-up to ensure that the matter is corrected.

 

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC today at (704) 370-2828. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.

 

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