At first, cosigning for someone else seems like the most altruistic act you can do for your friend. After all, how else could he qualify for that brand new Lexus? His credit is totally trashed thanks to the last car he owned.
Wait…. wasn’t his last car repossessed?
You are starting to think that maybe cosigning for him isn’t a great idea. Sure he’s a great guy and all; quick with a joke and the first one to give you a hug when you’re down. But cosigning is a big responsibility.
You’re almost completely, absolutely, 99.9% sure that he’ll make all the payments on time. But what about that 0.1% chance? What happens then?
Well, you might just find out, because you’ve already signed on the line which is dotted, and you just got a call from his car company.
Oh yeah. It turns out he is a 0.1 percenter after all. He hasn’t made a single payment since he got the car. And he isn’t answering your phone calls either. Where’s that pick-me-up hug now?
Dodge-ing the Bullet?
Now, thanks in part to the car that you cosigned for but don’t even own, you are in a financial crisis. It is bad enough you owe money on a car you’ve never even sat in, but now you quickly realize that there is no way you can afford to keep up with your credit card payments, old medical bills, and every other expense in your life.
Then something miraculous happens. You hear through the grapevine that your “friend” has decided to file for bankruptcy.
“Few,” you exclaim as you wipe the stress-sweat from your brow. “I really dodged a bullet on that one!”
Not so fast. It turns out that bullet is probably still heading right for you. And your ability to dodge is extremely limited.
But how can it be? You cosigned for a car, and now that debt is being eliminated in a bankruptcy. Why are you still on the hook for the debt?
In Part 2 you will learn why bankruptcy usually won’t get rid of a cosigner’s debt, unless the cosigner decided to file bankruptcy himself.