Bankruptcy question: please help if you can!

[Gryffindor_Bookworm]

I am hunting up an answer for one of my guy friends, who is going through some financial crap right now.

If anyone knows the answer, would you please explain how you know it (i.e. a link where you found the answer, or that it happened to you or you work in this field or something). Thanks!

Here's the situation: he took out a signature loan about 4 years ago. His mother co-signed it. It is currently up-to-date (because she has been making the payments on it). If he files Chapter 7, does it ding her credit? He knows that makes her totally responsible for it (but she's been making all the payments anyway while he's been unemployed, so nothing day-to-day would change. She makes all the payments now and would continue to do so.)

Her credit is absolutely perfect and she will be royally pissed if this dings it. Anybody know the answer??

Thanks!

[MrUnderhill]

1. No. Not if the payments are all made.

You don't even need to tell that creditor he declared backruptcy.

[Gryffindor_Bookworm]

2. Doesn't the creditor get notified by the BK court?

I thought they did....but I don't know. :shrug:

[MrUnderhill]

8. Just make sure that debt isn't included in the bankruptcy.

The judge will say which debts are closed off and which aren't.

Feel free to tell the judge the exact situation.

If necessary... it's called "reaffirmation". Your friend's mother affirms the debt is still hers.

Worst case... you can have the bank put the loan in her name only (once they know he's going in to bankruptcy it shouldn't be a problem)

[JimmyJazz]

10. yes, creditors get a report - all debt has to be disclosed.

[Spinzonner]

3. If you want professional advice

ask professionals.

That said, there are legal self-help to be found by Nolo Press and sold in most bookstores or on-line. Check out

www.nolo.com

[China_cat]

4. Yep

his bankruptcy will affect anyone that shares the reporting on his credit...for 7 years.

You're allowed one free credit report a year from all three reporting agencies. Before he does anything, he should request a report from each of them and look to see if his mother is listed (accounts will show as 'shared' accounts if someone else is on them) If that one is listed as a shared account, then yes, it will definitely impact her credit. If she's been making the payments anyway, she may be able to have the account transferred into her name only and then whatever happens with his won't affect her.

[liberalhistorian]

5. In addition to my many other

myriad talents and fountains of wisdom and knowledge, I also have a paralegal certificate and knowledge of bankruptcy law. From what I know (and I freely admit that I could be wrong), when you have a loan with a co-signer, the co-signer's credit is just as affected by what you do with the loan as your own credit is. So, if you file for bankruptcy, even if the co-signer assumes the loan, his or her credit is still affected by it.

That's why it's never a good idea to co-sign on a loan unless you absolutely, positively know the person won't default or have problems paying or won't lose their job, etc. Co-signing a loan is practically the same thing as signing for it and paying it yourself.

[Cuban_Liberal]

6. As long as the payments are anmd remain current, she's fine.

I heard a very similar question put to one of my law school classmates who is considering filing bankruptcy.

[liberalhistorian]

12. But if he files for bankruptcy, that

fact will become known to his creditors and it will affect her credit as well. If you're a co-signer, it's legally the same as signing for and paying for the loan yourself, with the same legal consequences. She could, of course, put the loan solely in her name, but his bankruptcy would still affect her.

[Gryffindor_Bookworm]

7. Eeek!

Liberal Historian and Cuban Liberal seem to have opposite answers but both are in a position to know....UM.....

:shrug:

[RebelOne]

9. Well, I declared bankruptcy many years ago

and any debt you have with a balance must be declared and that debt is wiped clean. It doesn't matter who is paying it, if it is in your name also, you must declare it. The mother's credit won't be affected by it, though.

[China_cat]

13. That was years ago. The rules have changed

http://www.legal-database.com/bankruptcy.htm

This is what it says about co-signers. While the originator of the loan would be out from under and the creditor could no longer go after him:

However, because a cosigner has joint liability, the creditor can still come after the cosigner for the full amount of the debt. After the debt has been discharged as to the main debtor (the person filing for bankruptcy), the entire obligation falls upon the cosigner to pay the debt.

[MikeG]

11. Check with the credit bureau first and the creditor

to see what they do in that situation.

My gut feeling is that as long as the cosigner pays the payments the creditor will report the account current.

Check with the players.