How to Understand Co-Signer Obligations Following a Bankruptcy

There are many reasons why you might consider co-signing on a loan. You may have a child beginning to build credit. A loved one may have fallen on bad times and need a little help rebuilding credit. Before you sign the dotted line you should understand what your obligations as a co-signer are, especially in the event of a bankruptcy. Read on to learn more.

Instructions

Difficulty: Moderately Easy

1. Understand what it means to co-sign. When you sign as a co-signer, you're promising that you will pay the debt in the event the other lender fails to pay it. This means that even if you don't know the debt hasn't been paid, you're still responsible. You may wind up paying for a vehicle or a house that you don't own and have never used.
2. Consider your responsibilities as a joint applicant. Many husbands and wives take out credit jointly. In essence, you are co-signing the loan with your spouse. If your spouse files bankruptcy and you don't, you become the person responsible to repay the debt.
3. Check your credit report. Lenders can report information on the credit reports of anyone on the loan application. When people pay on their debts on time, this isn't a problem. You generally won't be contacted until a problem becomes serious or a loan enters default. You may have several months of late or delinquent payments on your credit report without knowing it.
4. Take steps to remove yourself as a co-signer. Certain lenders offer programs that allow you to be released from obligation after a set amount of payments have been made on time. In situations like this, you must follow through to ensure that you are removed from the debt. If the company fails to remove you, you remain liable if the person files bankruptcy.
5. Watch out for extra responsibilities. Extra responsibilities may include any sum of money the company pays to collect the debt. In addition to paying the remainder of the primary debt, you may be responsible to pay late fees, attorney fees and/or collection fees.
6. Pay the debts or file bankruptcy. If you can, pay the debt. This protects your credit and ends your responsibility. You may be able to work out a new payment plan with the company or negotiate the debt by offering a smaller up front payment. If you can't pay the debt, you need to understand that you may have to file bankruptcy yourself to discharge the debt.