Cosigners are supposed to be a protection against default that a lender can rely on to make payments if the primary borrower cannot. Sometimes, however, the cosigner ends up being the borrower with financial difficulties. When that happens, the primary borrower needs to take special care to ensure that he or she does not become impacted by the cosigner’s money problems.
Here are a few examples of what could happen if the cosigner on your car loan files for bankruptcy.
- If you, as the primary borrower, have been making all the payments, your cosigner’s bankruptcy will have little impact on you so long as you continue to make all the required payments. If you stop making payments, the car could be pulled into your cosigner’s bankruptcy estate and sold off to pay down your cosigner’s debt.
- If your cosigner has been paying part or all of your car payments, you need to step up and start making the payments so the debt continues to be paid on time. If the lender is repaid as promised, the car will not be pulled into the cosigner’s bankruptcy estate even though he or she was putting some of his or her money toward the car loan.
- If the car loan is already in arrears at the time the cosigner files for bankruptcy, the car will likely be pulled into the bankruptcy estate. If that happens, it will likely be sold to pay off some of the cosigner’s debt.
In sum, the lender does not really care who is making the payments, as long as the payments are made. If the lender is not getting paid, it might result in an attempt to repossess the car.
Cosigning a car loan is always risky because cars begin to lose value the second they are driven off the lot. This makes it likely that the car will be worth less than the loan for a good chunk of the repayment period. Cosigning is especially risky if you do not have the ability or the intention to make the car payments you agreed to make.
If you are the primary borrower on a loan and your cosigner is filing for bankruptcy, contact an experienced attorney today for advice on your specific case.