A question that comes up a lot in bankruptcy is what happens to debt and collateral when I have cosigned with another party? Will the other person still owe the debt? Will the other person be able to keep their property (i.e. car, house, credit card, etc.) after I have filed for bankruptcy? Also, what happens to the other person’s credit report? Let’s take a look at these questions.
Can I File Chapter 7 Bankruptcy On Debt I Cosigned With My Ex?
I see this all the time where someone cosigned for a credit card with their significant other and now the relationship has ended. Unfortunately, the former significant other stops paying on the debt. Now the creditor is looking for you to pick up the slack. Filing a bankruptcy should enable you to discharge that debt. Once you have filed bankruptcy, your protections from creditors kick into place and that creditor can no longer contact you for any reason. Any potential lawsuits or wage garnishments would stop immediately. And, your discharge will eliminate any future liability. Contact your Glendale Bankruptcy lawyer for more advice about consignors especially if this debt was related to someone with whom you were formerly married or if you are going through a divorce.
Can I Include Cosigned Credit Cards in My Chapter 7 Bankruptcy?
You have cosigned with another person who you are not married to on a credit card. Now you have decided that you might want to file bankruptcy. What happens if you file bankruptcy? For credit cards, the answer is simple – you will likely discharge the debt from yourself. For the other person with whom you cosigned, they will continue to owe for any money still owed on that credit card. By filing a chapter 7 or chapter 13 bankruptcy, you should be able to discharge any type of credit card debt whether it was in your name or a card in which you cosigned with someone else.
I Cosigned on a Credit Card, Can I Keep it After I File Chapter 7 Bankruptcy?
But, what if you want to keep the card? Unfortunately, that’s not likely to happen. Once you file bankruptcy, the creditor will be notified that you filed. At that moment, the creditor will close the account and begin reporting on your credit that the account is now under a bankruptcy. What if I decide to leave this debt off the bankruptcy notifications so I can keep the card? First, I would never advise anyone to keep a debt off the bankruptcy. You have an obligation, under oath and penalty of perjury, to list all the debts you owe. Even if you did leave it off, most, if not all, credit lenders will run a “soft-check” on your credit report just to see what’s going on with your financials. If they see you filed bankruptcy, they will very likely close the account. At the very least, the creditor will lower the spending limit down to whatever amount you owe so you can’t use the card. Either way, you will likely lose the ability to use the credit card. Can you try to work something out with the lender so you can keep the card? Maybe, but the new terms will not be favorable to you and likely not worth it. It’s very unlikely that the lender would agree to allow you to keep the card.
Can the Person I Cosigned With Keep Their Credit Card After I File Chapter 7 Bankruptcy?
What about the other person? Once a bankruptcy is filed, typically, lenders will transfer the account status to bankruptcy no matter who’s listed as an account holder. The other person’s credit should not be affected because they did not file bankruptcy. However, it still may report as under a bankruptcy on their credit at least until your bankruptcy case ends. The other party can dispute this as inaccurate reporting with the credit bureaus or call the lender to find out what they can do. The cosignor should not lose the ability to continue using the credit card. And, as long as they continue to pay for the card, no adverse actions should be taken against them.
Can I Get Out of a Car Loan I Cosigned With Someone Else By Filing Chapter 7 Bankruptcy?
Car loans are different because the car acts as collateral for the loan. If you cosigned for a car, then that payment must be made by someone for you (or them) to be able to keep the car. If you no longer want the car and don’t want to be stuck with the car in your name, filing bankruptcy may help you achieve that goal. In bankruptcy, you can surrender your interest in the car. Your obligation towards the car loan will be discharged. It would be up to the other person to pay on the loan to be able to keep the car. The same credit reporting issues may apply to a car loan as with a credit card; however, their credit score should not be affected because you filed for bankruptcy.
What If I Want to Keep A Car I Cosigned With Someone Else, Can I Still File Chapter 7 Bankruptcy?
After you file bankruptcy, you can Reaffirm your car loan:
What if it’s a car you want to keep? In that case, you could look at reaffirmation. Reaffirmation is a common term in bankruptcy related to car loans. A reaffirmation is like a new contract you would sign with the lender allowing you to keep the car under the same terms as when you purchased it. For as long as you or the other cosignor makes the monthly payment on the loan, you would be able to keep the car. The lender rarely wants to take back a car. They want you to continue making your payments so they can continue earning interest on your loan. When the car comes back to the lender, it’s a losing situation for them because they will not likely be able to get the full value for the car when it’s sold at an auction. Therefore, the lender wants you to keep the car. Sometimes a negotiation can be made to make the terms of the reaffirmation more favorable to you. If it’s a car you really want to keep, consider reaffirmation.
Your other option to keep your car may be Redemption:
You may also be able to look at a Redemption. Redemption is an entirely new loan, but bankruptcy rules allow you to get the new loan at the current market value of the car. For example, suppose your car is currently worth $10,000. When you bought the car, you carried over some negative equity because the trade-in you gave for this car was not worth enough money to cover the outstanding loan. So, you had to borrow more funds to cover that loan and buy this new car. You owe $20,000 on the loan, which is double the actual fair market value for your car. You could apply for and be approved for a redemption loan which allows you to borrow $10,000 so you are paying $10,000 for a car which has a value of $10,000. This may be worth it for you to keep this car if the terms of the redemption loan are favorable to you. There are specific loan companies that specialize in redemption loans for people who have filed bankruptcy. You apply for the loan and if approved, you then ask the court to approve the new loan and allow your old $20,000 loan to be included in your discharge. Your soon-to-be former lender has the opportunity to object if you attempt to get a redemption loan that the old lender believes is less than fair market value. If you are interested in redeeming a car, talk to your Glendale Bankruptcy Lawyer at Gaudiosi Law for advice on either reaffirmation or redemption for your car. You can also go to www.722redemption.com to see if you can pre-qualify for a redemption loan before you file bankruptcy.
Can the Other Person Keep the Car I Cosigned After I File Chapter 7 Bankruptcy?
What about the other person? It again depends on whether the other person wants to keep the car. If they do want to keep it, then they would have to pay for it or at least someone has to pay for it. Any property you have that has been pledged as security or collateral like a house or car must be paid for by you or them to be able to keep the property. If they do not want to keep the car, then it could be surrendered. When a car is surrendered, the lender will sell the car at a wholesale car auction. Typically, dealers buy used cars at auctions so they can pay less than fair market value. This is usually much less than what the car is worth, which means you or the cosignor will be stuck paying the difference. For example, suppose you surrender your car with a fair market value of $20,000. You currently owe $30,000 because you carried over negative equity when you bought the car. See my example above about negative equity. The lender auctions the car, and it sells for $12,000 at a wholesale auction. You and the cosignor are now both jointly and severally liable for the difference between the $30,000 you owe and the sale price at auction of $12,000, which is $18,000. You can bet that the lender will be looking at you and the cosignor to recover the $18,000 still owed on this car. Jointly and severally means that the lender can come after you for the entire $18,000 or it can come after both of you at the same time for the money owed. Bankruptcy could help you eliminate this debt through a chapter 7 or chapter 13 discharge. For more information about bankruptcy, check out these bankruptcy basics on the bankruptcy court website for the District of Arizona. https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics.
Filing any bankruptcy is complicated. The rules can get overwhelming fast. If you don’t have an experienced bankruptcy lawyer on your side like the one’s at the Gaudiosi Law firm, you might end up owing money for a debt you didn’t want, or you might end up losing money or property you wanted to keep. Anyone interested in filing bankruptcy should check our website at www.gaudiosilaw.com or give us a call at 623-777-4760. We are happy to answer any questions you have or offer you a free consultation to discuss your bankruptcy matter. Call us today to schedule an appointment.
