Co-Signing On Debt
Co-signing for a loan is not an everyday occurrence. Many people with poor or under established credit may only be able to secure a loan with the help of a co-signer. Although co-singing is commonplace in some instances, there are risks involved to both the borrower and the co-signer if the debt becomes delinquent or is unpaid. When you cosign a loan for someone you are essentially telling the lender that you will be responsible for the repayment of the loan if the primary borrower defaults. This is a huge undertaking for most people. If the borrower files for bankruptcy protection you could find yourself on the receiving end of harassing calls from creditors, threats of liquidation or risk damaging your credit.
Cosigning a loan is something that should be done with extreme caution. Make sure you know the terms of the loan, how much you are agreeing to be responsible for and if you feel you are able to handle some of the worst case scenarios before you commit. Make sure you have an open and honest discussion with the borrower about the risks involved.
Despite the risks associated with cosigning a loan, it’s not uncommon for borrowers to attempt to protect their cosigners from the debt they owe. If the borrower is planning on filing for bankruptcy, they may try to protect their cosigner from the debt they owe by including a clause that lets them off the hook. If you, as the cosigner, are not aware of this clause it could come as a huge surprise. While it’s not uncommon for a borrower to try to protect their cosigner, it’s against the law. If the borrower is planning on filing for bankruptcy and includes a clause that exempts you from the debt they owe, you can dispute it. The clause should not be enforceable because it was not included in the original loan agreement. If you still find yourself in the position of facing the debt owed by the borrower you can submit a proof of claim to the bankruptcy court.
It’s important to keep the lines of communication open with the borrower to ensure that they are not planning on including you in their bankruptcy filing. If you are not included in the filing, you can move forward with your life and continue to build good credit. Cosigning a loan can be a smart move provided that the borrower has good credit and is financially stable. If you have any questions or concerns about cosigning a loan contact one of our Sacramento bankruptcy lawyers today.