What Happens when a Co-Signer Declares Bankruptcy

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Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


, Contributing Writer - January 27, 2017

A co-signer on an auto loan agrees to make the payments if the primary borrower defaults, giving the lender a sort of insurance policy. But if the co-signer declares bankruptcy, they will no longer be responsible for the loan.

However, as long as the primary borrower continues to make the payments as agreed, there's a chance that none of the loan terms will change. Still, a borrower in this situation should contact their lender as soon as possible. Losing a co-signer safety net can make a lender uneasy, so it's helpful to offer immediate reassurance that loan payments will continue.

Possible Actions to Take if Your Co-Signer Declares Bankruptcy

Bankruptcy laws vary from state to state, and lenders can have different policies. So if a borrower's co-signer files for bankruptcy, they should do two things immediately. First, borrowers should write and send a notarized letter to the lender, affirming their intention to fulfill their obligation. Then, the buyer should contact a lawyer.

Occasionally, lenders have tried to unlawfully protect their interests in instances where co-signers have declared bankruptcy. These lenders have demanded borrowers immediately pay off loans in full. In fact, some have even gone so far as to refuse regular payments and to deny contact with the borrower.

In most states, though, consumers are legally protected from these actions. After all, it isn't the borrower's fault if a co-signer is forced to file for bankruptcy. Also, if the person paying for the auto loan wishes to get a new co-signer or have the bankrupt co-signer officially removed, the lender should be able to oblige. But, in most states, the lender will not be able to force these types of loan modifications on borrowers who are in good standing with their payments.

If, on the other hand, the primary buyer stops making payments and the co-signer is bankrupt, the lender will probably repossess the car. For this reason, it's extremely important for the buyer to make every loan payment on time. With no co-signer in the picture, borrowers effectively lose their "insurance policy" too.

Auto Loan Assistance for Post-Bankruptcy Car Buyers

If you've gone through a bankruptcy, or if you're dealing with any other type of credit issue, CarsDirect can help make the car buying process faster and easier. Even if your credit is damaged, we can connect you with a local dealership that can work with unique credit situations.

We've been offering this service for over 20 years, so we understand that you don't want to waste time or money. This is why we work quickly to provide absolutely free assistance to car buyers like yourself and many others who just need a second chance.

Filling out our simple secure online auto loan request only takes about a minute and requires no obligation. So go ahead and get started today.

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, Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


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