People who have poor credit or are experiencing financial hardship may require the help of a friend or family member to obtain a loan. While cosigning a loan isn’t inherently bad there are quite a few consequences that should be considered, especially if the need for bankruptcy arises.
Shared Debts
When you cosign a loan for someone you are essentially telling the lender that you will be responsible for the repayment of the loan if the primary borrower defaults. This is a huge undertaking for most people. If you consider the fact that financial hardship can strike anyone at anytime, the risk you are facing for debt liability is a big one. If the borrower files for bankruptcy protection you could find yourself on the receiving end of harassing calls from creditors, threats of liquidation or risk damaging your credit.
In a Chapter 13 case, the primary borrower would arrange a payment plan with the lender. This generally keeps you out of harms way, assuming they maintain the payment plan as scheduled. In other words, as the cosigner you are not legally liable for the debt as long as the primary borrower completes their Chapter 13 plan. In a Chapter 7 case, the primary borrower could be granted a discharge without the requirement to repay the debt. If this happens, you could become liable for the debt and face creditors.
The risks involved with cosigning a loan can be costly, but it doesn’t mean the end of your options. Whether you are a cosigner on a loan that is in default or the primary borrower facing financial hardship, consult with a St. Petersburg bankruptcy lawyer about your options for resolving this type debt.