Co-Signing For A Loan Could Land You In Bankruptcy

If an adult child or anyone else asks you to co-sign for a loan, beware: if they default on the loan, you could end up in bankruptcy because you will be 100% liable for that loan.  If you are willing to sacrifice your financial health for your adult children or someone else that’s fine, but you should know ahead of time that this might be the result of co-signing for a loan.

When you co-sign for a loan, you become equally liable for it.  The lender can try to collect from the primary borrower, the co-signor, or both of you.  (The person who asks you to co-sign is the primary borrower.)  If the primary borrower remains current on the payments, all is fine and you won’t hear from the lender.  But if the primary borrower becomes delinquent on the loan, the lender will insist that you pay it.  If you can’t afford to do so, you may end up in bankruptcy.

Student loans are not dischargeable in bankruptcy (in other words, bankruptcy won’t help with them), and in California lenders who foreclose cannot generally go after you for any money if they don’t get their entire loans back from the foreclosure sale.  But if the primary borrower becomes delinquent on the loan and you don’t promptly cure this delinquency, the delinquency will probably show up on your credit report and will harm your credit rating.  For any other type of loan, filing bankruptcy may be your best option if you can’t afford to repay the loan.

Parents want to help their children succeed in life, and one way they do so is to help them financially.  However, many people do not understand the risks of co-signing for loans, only find out about their own liability after the primary borrower defaults.  Whether to make this potential sacrifice for your adult children or anyone else is a personal choice, and the purpose of this post is not to discourage you from co-signing for a loan if you wish to do so.  But you should fully understand the risks of co-signing before you do this.

If you have co-signed for a loan or have other serious debts that you cannot afford to repay, contact a bankruptcy attorney today.  We can help get rid of debts that you cannot afford to pay (beside student loans) and get you a financial fresh start.