How does a bankruptcy affect a co-signer’s obligation under a car loan?

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How does a bankruptcy affect a co-signer’s obligation under a car loan?

I am a single woman who owns a car that was paid in full. My son however has a vehicle that I co-signed for and somehow ended up with the loan in my name, though my son makes all payments. I have recently lost my job. my unemployment benefits have run out, and the banks are threatening foreclosure on my home. I fear bankruptcy in my last option. Would Chapter 7 effect my son’s vehicle, or would they expect me to sell my vehicle?

Asked on November 12, 2010 under Bankruptcy Law, Washington

Answers:

S.L,. Member, California Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

As a co-signer, you will need to list the car loan in your bankruptcy.  Since your son is making the payments, the loan should not be a problem.  Since the loan is in your name, it would be advisable to reaffirm the debt, which means agree to continue as a co-signer and agree to make payments even though your son is actually the person making the payments.  When you reaffirm a debt, the creditor may offer better terms on the loan.

As for your car, there are exemptions in the bankruptcy which would allow you to keep your car.

 


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