My co-signer has filed for a bankruptcy. How does this affect my credit?
What Happens when a Cosigner files Bankruptcy ?
For some people, especially those who have bad credit, getting a co-signer on a loan is a great way to borrow money and build credit. Having a co-signer helps you get a loan that you otherwise wouldn’t have been able to get. However, when you get a loan, it’s important to consider what might happen if your co-signer ends up in financial difficulty or declares bankruptcy.
Most lenders only accept a co-signer who is in a good financial situation. However, sometimes, this situation changes. A co-signer could be financially stable when they co-sign your loan and then end up facing financial difficulties later on. Also, in some cases, a lender will allow a co-signer who has poor credit or not notice if a co-signer is in a bad financial situation. Consider your options when cosigner files bankruptcy.
So what happens to you if your co-signer declares bankruptcy?
First of all, declaring bankruptcy eliminates the co-signer’s obligation to cover your loan if you are unable to do so. This can worry the lender, since the lender will now be counting on you to make all of the payments without any “safety net.” However, as long as you continue to make all of your payments, a co-signer declaring bankruptcy should not affect your credit score.
It may show up on your credit report that the loan has gone into bankruptcy (since the co-signer has declared bankruptcy) but this should not affect your credit score. In this situation, it is important to keep an eye on your credit bureau records and ensure that your credit score has not been damaged by this situation. After all, you haven’t declared bankruptcy, your co-signer has.
While the co-signer may have been necessary to get the loan in the first place, it is possible that you can pay off the loan without the co-signer. In fact, even if you have a financially stable co-signer, you shouldn’t be depending on him or her to provide you with financial support or assistance in paying down your loan. A co-signer is there to give the lender extra security, not to help you pay your loan. If you keep making your payments, there shouldn’t be any issues with the loan or your credit report.
If you are unable to continue to make your payments, this would hurt your credit score. In addition, if you have taken out a loan on a vehicle (for example) the lender could repossess the car if you are unable to make the payments. If you are unable to make payments on a monetary loan, the lender could take legal action against you or attempt to garnish your wages. This is because, if you default on the loan, the lender no longer has the option of demanding payment from the co-signer.
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