In part 1 we learned about a very common scenario that can be devastating to friendships. You cosigned for your friend’s car, and he decides not to make the payments. Now you are stuck owing money on a vehicle you don’t even own.
We will now look at how bankruptcy can help eliminate a cosigner’s debt, and also how in most situations, it can’t.
An Una-Ford-able Predicament
Bankruptcy is a great way to eliminate debt. Unsecured debts like credit cards and medical bills simply disappear when you file. If you have a vehicle you can’t afford, or you are behind on payments, you can give it back into the bank without owing any money.
But, when there is a cosigner involved, he or she is still on the hook for the debt even if your bankruptcy eliminates the debt for you.
So now let’s say you are the cosigner who doesn’t file for bankruptcy. You will still be completely liable for the debt, even if the other guy gets off scot-free through bankruptcy.
As a cosigner, what are your options?
Unfortunately, you don’t have many options other than paying off the debt completely.
One option is to file bankruptcy yourself. Depending on how much you owe on the vehicle and whether or not you have other debts you would like to eliminate, this may be a great option for you.
The last option is out of your hands, but if your “friend” files for chapter 13 bankruptcy rather than chapter 7, and you are in the right part of the country (since this law varies by region), he may be able to pay off the cosigned vehicle through his chapter 13 payment plan, and you won’t owe a penny. Unfortunately, this is a fairly rare set of circumstances, but if you get lucky it just might work for you.
Hopefully by now you realize that being a cosigner is a risky proposition. You should consider it wisely before making the final decision. An even safer approach is to make a personal vow never to cosign for anyone. You might lose a friend that way, but it’s a lot less likely than losing a friend by becoming a cosigner.