What will happen to him if I file bankruptcy?

With the tough economy, we have observed a common pattern in our practice.  As more and more recent high school and college graduates find it difficult to find jobs, they are relying on their parents for financial assistance.  One of the most common ways for a parent to help is to cosign a vehicle loan.  Unfortunately, if the young adult ends up filing for Chapter 7 bankruptcy, the cosigner-parent remains on the hook for the debt.  In fact, the cosigner is identified in the bankruptcy petition as a co-debtor on the auto loan, although the automatic stay does not apply to the cosigner-parent. The young adult – the debtor – will benefit from the bankruptcy discharge, but the cosigner-parent will not receive the same benefit.  The cosigner parent is responsible for making the car payments.  In general, so long as the cosigner-parent remains current on the payments, the vehicle will not be repossessed.  If the cosigner-parent stops making payments, the vehicle will likely be repossessed and the lender will pursue the cosigner-parent for any amount still owed on the loan.  Another option is for the young adult – debtor – to reaffirm the loan or, if financially feasible, to file in Chapter 13 instead of Chapter 7.  Even if the young adult files Chapter 7 and obtains a discharge, he always has the option of repaying the cosigner-parent after his financial situation improves.

 

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