If you file for bankruptcy, one of the questions you might have is if a vehicle you cosigned on will be lost as a result of your bankruptcy filing. If you cosigned on a vehicle for your child or a friend, you may worry that your bankruptcy will mean that they lose a vehicle that they need.
The good news is that usually, that won’t be the case. Instead, someone who is cosigned on a vehicle will simply no longer be responsible for the debt if the person they cosigned for stops paying for the car in the future.
What happens next may vary based on the circumstances
When you file for bankruptcy, the goal is to relieve yourself of debts and agreements that are hurting you financially. Vehicles loans are unique because they are secured debts, but you still have the option of asking to be removed as a cosigner.
To do this, you’ll file Form 108, which is a statement of intentions that allows the creditor and court to review your plan for the vehicle. Regardless of your actions, your cosigner will still be obligated to pay the debt.
As the cosigner of a loan, filing for bankruptcy will only affect your liability toward the debt, not the other party’s. That means that as long as they continue to pay, they should be able to keep the vehicle. On top of that, their personal credit history should not be affected by your decision to go into bankruptcy.
However, if the cosigned stops paying, they could face the repossession of the vehicle or other repercussions. At that time, no one else would be cosigned on the loan, so you would not be obligated to cover the debt if the individual stops paying.
Keep in mind that you may temporarily lose online access to the debt, so you do need to keep your cosigned informed about the bankruptcy and changes that may happen as it moves ahead.
This can be a tricky situation. It’s a good idea to go over your options with someone familiar with handling cosigned debts in bankruptcy.
