What Happens to a Non-Filing Co-Signer When the Debtor Surrenders a Vehicle in Chapter 13?
A chapter 13 bankruptcy allows people to reduce the amount of debt they owe while retaining assets, such as a home and vehicle. Chapter 13 bankruptcy law offers a rescheduling of secured debt for the filer.
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Secured Debt
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A secured debt is a loan with collateral. Home mortgages and car loans are examples of secured debts. If a homeowner fails to make the mortgage payment, the lender gains ownership of the property. If a vehicle owner fails to make the monthly car payment, the lender may take possession of the vehicle.
Unsecured Debt
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Unsecured debt is not guaranteed with property or collateral. Credit cards, medical bills and personal loans are examples of unsecured debt. If the debtor fails to make payments, the lender may not gain ownership of possessions.
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Rescheduling Plans
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A person filing a chapter 13 bankruptcy must repay priority and secured debts in full, but is not required to repay unsecured debt. Priority debts include taxes, child support and bankruptcy court costs. Secured debts include home mortgages and vehicle loans. A rescheduling plan may reduce the monthly payment but extend the life of the loan.
Vehicle Loans
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If the person filing surrenders his vehicle during the bankruptcy, he is still responsible for any unpaid portion of the loan. Due to depreciation, the outstanding amount of a vehicle loan is usually higher than the vehicle's value. Therefore, the debtor must repay any amount still owed on the secured loan.
Cosigners Rights
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Cosigners of secured debt are not responsible for repayment as long as the debtor honors the rescheduling plan. If the debtor does not honor the rescheduling plan, then the cosigner is responsible for any outstanding amount.
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