When you make a loan or debt to a creditor, it would require you to have a co-signer (like your parents) who are accountable for paying back the debt if you cannot do so. Let’s say you go bankrupt amid your payments. What will happen to your co-signer? Will the creditor sue them? Let us find out in the following paragraphs below.
Your bankruptcy will only terminate your responsibility for the unpaid debts. It has no bearing on the co-signers’ accountability for your debt. However, the amount of protection they will receive depends if you file a bankruptcy. In cases like car loans, inasmuch as you pay the creditor, as well as sign a contract for the car loan, the co-signer would be fined regardless of the bankruptcy. Loaning a car is a type of consumer debt. The car debtor cannot sue your parents while you are in it. Given that you make a series of payments or finance it off ultimately, your parents will not be sued, just as you during and after the bankruptcy, provided that your payments are current. However, if you are unable to pay your monthly dues after filing for bankruptcy, the debtor can reassume the automobile. Still, they cannot charge against you for insufficiency since it would have cleared any unguaranteed loan to the car firm; however, they can still pursue your parents as co-signers for the liability.
On the other hand, student loans have the same cases as credit cards. A co-signer has no protection in a bankruptcy process. Take note that student debts are generally not dischargeable in bankruptcy. However, if you show the Judge for Bankruptcy that repaying the educational loan might be an excessive difficulty on you and your dependents, then it might be okay. The courts already decided to make “Undue Hardship” challenging. Once you file for a bankruptcy, the creditors will be unable to take action against your parents if the bankruptcy process is not yet completed. They will be able to charge your co-signers because they are still liable for the debt. However, to ensure that your co-signers would not get sued by the creditor, you can establish a distinct categorization for the creditor in the plan and agree to reimburse them a hundred percent. The debt will then be dissolved once you receive your discharge. It is infrequent for those who are bound to pay a good deal of money on educational loans to enclose bankruptcy for their own assurance and the co-signers for a number of years, whereas they obtain employment that may alter them minimum payments that the loan lenders might need.
To summarize, bankruptcy would eliminate your debt liability and discharge it, but it would not affect your parents’ relationship with the credit card company. When taking loans, there are different ways to address bankruptcy depending on the situation of both parties. If you co-signed a loan, you should not be held accountable for any damages if the principal borrower filed a lawsuit after an accident. However, if the borrower defaults on the loan due to the accident and suit, you will be responsible for making the loan payments.