I know that parents or other siblings gladly sign a credit application, unknowingly or possibly under pressure (because they cannot afford to say NO) where they, invariably, become a co-signor to the lenders despite the promise by the primary debtor to pay diligently the required amount. In many cases, they continue paying for many months but what happens if they file bankruptcy? This become a serious situation as this involves former benefactors. We had seen cases where only one spouse has filed bankruptcy, or other relatives who co-signed, cannot file bankruptcy due to variety of reasons like preservation of their good credit ratings. Are they liable to their part of the debt? Yes, they do because the liability is “individually and severally” which means if one cannot pay, the other has to pay. This liability can, however, be discharged in Chapter 13 bankruptcy, where the debtor is assuming 100% repayment plan. As usual, the http://www.fastbankruptcynevada.com can offer free bankruptcy consultation.
As you may like to know, bankruptcy only discharges the debt of the filing party and no one else. The debt is still there but is shifted to the remaining party which is a co-signer in this case.
Bankruptcy discharges the party filing bankruptcy from the legal obligation of paying on a given debt; it does not eliminate the debt itself. The debt still exists and the party who is owed the debt cannot pursue recovery of that debt from a party discharged in bankruptcy. The debt is simply transferred to the remainder of the party owing the debt.
The entire reason for having a co-signer on a loan or credit card application is to make the transaction credit worthy because the original applicant cannot stand at its own and finalize the same transaction. Simple it means, the lender has two choices one is the primary applicant and second the co-signer. If the primary applicant disappears through bankruptcy, they can come after the secondary person i.e co-signer.
What we suggest for the Co-Signer?
If Bankruptcy is not possible, and the owed debts are small, they should do debt consolidation and negotiation with their lender. Of course, it is not a bad idea to make a consolidated deal of debt consolidation and reduction of all of their debts. Lenders prefer to have something rather than have nothing and only a discharge certificate haunting them.