What Happens to the Co-Signer of a Car Loan in Bankruptcy?

When it comes to car loans, co-signers are often required when the primary borrower has bad credit or insufficient income. Unfortunately, if the primary borrower files for bankruptcy, then what happens to the co-signer can be confusing. To give a better understanding, this article will discuss what may happen to a co-signer when their counterpart is forced into bankruptcy.

Generally speaking, in cases of chapter 7 bankruptcies where assets are liquidated and debts discharged, any debt that was guaranteed by a cosigner becomes their responsibility. As such, even if the loan was discharged from the primary borrower’s insolvency case, the lender can still collect money from them if necessary. Furthermore, there could also be legal ramifications for failing to repay a loan that was originally held by someone else who entered into bankruptcy protection.

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