Finding out your co-signer is filing for bankruptcy can be a stressful experience when you are not sure what will happen. Looking at the different ways bankruptcy can impact co-signed debt may help you better navigate this situation. Bankruptcy may not always negatively impact co-signers, depending on what steps are taken. Learn more by consulting with a Chattanooga bankruptcy lawyer about your situation.
How Bankruptcy Impacts Co-Signed Debt
Not everyone realizes how bankruptcy can impact co-signed debtors. Many people already know that co-signing debt comes with the risk of having their credit score tied to another person. This means that if you or your co-signer fails to pay the debt, both of your credit scores can be negatively impacted.
This leaves many people wondering what will happen if the person they co-signed with files for bankruptcy. As long as your name is on the debt, up to 30 percent of your credit score can be impacted by how your co-signer deals with that debt. The one benefit is that this will only apply to the debt you co-signed on.
A negative credit score can lead to a variety of problems. These include fewer financial options, higher interest rates, and greater obstacles to obtaining loans. Some creditors may refuse to offer you a loan due to a low credit score. Bankruptcy can impact a credit score for up to ten years.
However, bankruptcy does not always impact your co-signer’s credit score. What often happens is your co-signer will still be responsible for paying the debt, even after debt discharge in bankruptcy. Your cosigner’s credit score will not usually be impacted by bankruptcy unless they refuse to pay back the co-signed debt. Creditors may take steps to have your co-signer repay debt during or after bankruptcy.
Take Control of Bankruptcy and Co-Signed Debt
You might be wondering if there is any way to regain control when you or your co-signer file for bankruptcy. A bankruptcy debt reaffirmation agreement might be a way out. Many co-signers choose a reaffirmation agreement to prevent the co-signer from having to repay debt after bankruptcy.
Otherwise, your co-signer could be responsible for paying back debt even if your debt is discharged in bankruptcy. It is important to fully understand what you will be agreeing to with a reaffirmation agreement. A reaffirmation agreement can prevent your co-signer from paying debt after bankruptcy, but if you fail to follow this agreement, there could be consequences.
What a reaffirmation agreement requires is a new repayment plan. This new repayment plan usually offers more time to pay debt with lower interest rates and lower monthly payments. Missing a payment could violate this agreement and lead to property loss, debt recollection, and lower credit scores.
Contact Tom Bible Law Today for Legal Help
Dealing with co-signed debt and bankruptcy can feel overwhelming. Do not hesitate to contact us at Tom Bible Law by dialing (423) 424-3116 for a consultation today about your legal options with bankruptcy and co-signed debt. Our legal team of Tennessee bankruptcy attorneys is ready to help you escape debt through bankruptcy. We are located in the Tennessee cities of Chattanooga and Tullahoma.