Depending on the type of bankruptcy you are eligible to file, you may be able to discharge the majority of your current debt. This may be a firm step towards regaining financial stability in your life. Under Chapter 7 rules, all of your unsecured debt can be discharged. Under Chapter 13 rules, most of your unsecured debt can be reorganized for repayment under new terms. If any of your debt is secured, the regulations require that the collateral, or security, be submitted for repayment. If you have a loan or debt that is secured by a co-signer, your bankruptcy can have a serious impact on the person that you have to consider before filing for bankruptcy.
A co-signer is used when your credit rating is not considered enough to secure the good faith of repayment on a loan. Co-signers agree to repay the debt should you default. Defaulting on a loan is legally indicated by filing for bankruptcy or ceasing payment. Once this happens, the total debt than shifts from the original signer for the loan to the co-signer. For many people, their co-signer is a friend of family member and it is very important that the responsibilities involved with the loan be understood by each to avoid damaging the relationship. Check out a dallas bankruptcy lawyer to find out more.
If you default on your loan amount, or apply for bankruptcy, the secured loan responsibility shifts to the co-signer. This does not always mean that they simply assume payments. For many cosigned loans, the terms and conditions will state that the total amount of the loan is then put into a short payment cycle. This means that the cosigner does not have the original remaining life of the loan to make the payments on, but may have to pay the total amount within a short term, such as 60 or 90 days. The terms are spelled out clearly, but often not emphasized in the explanation of the original loan as few expect to default.
The terms and conditions of a co-signed loan may also make the cosigner responsible for the full amount of the loan, excluding any previous payments, as part of the penalty for defaulting. It is important to speak with the cosigner of your loan to make sure that they are able to assume the payments before filing for bankruptcy. You may have to file for a reorganization of your debt to create a more affordable payment plan for you to avoid burdening your cosigner with a loan amount that they will default on as well.