If someone needs automobile financing but lacks the necessary credit, a second person can cosign for them. When someone cosigns on a loan, they are just as liable for the debt as the person their signing for. So, if Jon needs to borrow $5,000 for a car and his friend Charlie cosigns on the debt with him, they are both liable for the payment. This means if for some reason Jon loses his job or can’t pay, Charlie has to pay. This happens most often in the context of a divorce. Even if a family court judge orders a wife to make payments on the mortgage, this doesn’t remove the liability from the husband. This often leads to bankruptcy for both parties since most couples borrow as much as they can, leaving them with a debt that neither can pay individually. This is why cosigners are given special notice when the party they signed for files a bankruptcy.
However, just because a party files bankruptcy, it doesn’t mean that the non-filer can’t finish making the payments. If Jon were quit paying on the loan in the example above, Charlie could make the payments for him to preserve his own credit. This often happens in the context of student loans. I personally know a husband and wife who cosigned on their son’s private student loans. Upon graduating, the loans came due and he’s been unable to find employment that would enable him to make payments for over a year. His parents, now well into their 50’s, are now saddled with tens of thousands of dollars in debt for his apparently unmarketable education.
If you are a codebtor on a loan and the borrower or yourself are filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be, contact a Jacksonville Bankruptcy Lawyer or call us at (904) 685-1200 for a free consultation.