There are many good reasons why you may want to cosign a loan. Some typical examples include helping a child obtain their college education by co-signing student loans, or assisting your spouse in purchasing a car. With any good idea, however, a small difference in the situation can make it a very bad idea.
Many people are unaware of the consequences of cosigning a loan, and in many many instances cosigning may be a very bad idea. Take just the two examples described above: If your child is unable to find a job after college and therefore unable to pay their student loan, that loan will be your responsibility. If you and your spouse separate and he or she stops paying their car loan, your credit will be affected as well (even if they still have the car).
In these previous three posts we explored what happens when a cosigner or the primary borrower on a loan declares bankruptcy:
What happens to my Cosigner if I file for Bankruptcy?
I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?
I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?
The short answer is simple: IF YOU SIGN A PROMISSORY NOTE, YOU HAVE A RESPONSIBILITY TO PAY THAT LOAN.
By the numerous comments and questions we receive on all three of those posts it is obvious that many cosignors don't realize how serious this obligation is when they signed the loan. Many people feel that it should matter that they don't have access to the collateral (such as a house or car) or that they don't have a relationship with the primary borrower anymore. These are all the inherent risks in co-signing a loan and it doesn't matter to the lender. If you cosigned a loan, you agreed to pay the money back if the other person doesn't, regardless of the circumstances.
If it isn't paid on time your credit will be affected. If it isn't paid at all, the lender can sue you for the funds. If the primary borrower files for bankruptcy and the debt is discharged so that they no longer owe it, you still do!
Cosigning a loan is not something that should be taken on lightly. There are often good reasons to do it, but you should also consider all of the reasons why you might not want to. In short, if you can't pay back the loan yourself, then you'd better be 100% positive that the primary borrower will pay it back. If the lender was convinced of that, then the primary borrower wouldn't need a co-signor in the first place.
Showing posts with label codebtor. Show all posts
Showing posts with label codebtor. Show all posts
Thursday, August 7, 2014
Wednesday, October 31, 2012
What to do when you receive a Notice of Bankruptcy? Step 4: What is your liability?
In our previous posts in this series you should have already identified why you received the Bankruptcy Notice and what the deadlines are that might apply to you. In order to determine whether you should take any action related to this Notice, you now need to determine what you may have to lose.
If you are a creditor and you take no action, the debt owed to you may be discharged. In most cases, there is nothing a creditor can do to prevent the discharge, especially in a no-asset case. The right of the debtor to file for bankruptcy trumps your right to be paid by the debtor. However, there are some examples where taking action can result in payment (or at least non-discharge of your debt). Some examples where you may be able to prevent discharge of your debt, or all debts, is when the debtor committed fraud, when the debtor is trying to exempt property that should not be exempted, or when the debt is secured or otherwise protected from discharge (these are just some examples and is not intended to be an exhaustive list).
In any case where a creditor can prevent discharge, they are usually required to take some action to notify the court of their dispute and enforce their rights. For example, in the case of fraud, the creditor must file an adversary proceeding challenging the discharge of that debt based on fraud. In each individual case, you will have to determine if the value of preventing discharge of the debt is greater than the cost of enforcing that right. In many such cases the creditor may reach settlement with the trustee regarding payment.
There are also situations where a bankruptcy may affect your liability, but there is nothing you can do about it. For example, many codebtors will be affected by the bankruptcy of the debtor but have little rights to challenge the bankruptcy, because their liability is due to their own agreement with the creditor and they have no separately existing rights against the debtor. This is often the case when one spouse, or ex-spouse files for bankruptcy. Bankruptcy can have a major affect on debts owed by both spouses, and therefore property division, but if the divorce agreement doesn't appropriately address this possibility, the non-debtor spouse may have few or no options. For more information about cosignors or the interplay of divorce and bankruptcy you may want to review these other posts:
I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?
I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #4: Jurisdiction over Your Assets
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #3: Jurisdiction over Your Debts
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #2: Domestic Support Obligations
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #1: The Automatic Stay
Once you've identified your exposure in a bankruptcy, the last step is to determine if you need help in limiting that exposure. Should you hire a bankruptcy attorney to help you evaluate your claims?
If you are a creditor and you take no action, the debt owed to you may be discharged. In most cases, there is nothing a creditor can do to prevent the discharge, especially in a no-asset case. The right of the debtor to file for bankruptcy trumps your right to be paid by the debtor. However, there are some examples where taking action can result in payment (or at least non-discharge of your debt). Some examples where you may be able to prevent discharge of your debt, or all debts, is when the debtor committed fraud, when the debtor is trying to exempt property that should not be exempted, or when the debt is secured or otherwise protected from discharge (these are just some examples and is not intended to be an exhaustive list).
In any case where a creditor can prevent discharge, they are usually required to take some action to notify the court of their dispute and enforce their rights. For example, in the case of fraud, the creditor must file an adversary proceeding challenging the discharge of that debt based on fraud. In each individual case, you will have to determine if the value of preventing discharge of the debt is greater than the cost of enforcing that right. In many such cases the creditor may reach settlement with the trustee regarding payment.
There are also situations where a bankruptcy may affect your liability, but there is nothing you can do about it. For example, many codebtors will be affected by the bankruptcy of the debtor but have little rights to challenge the bankruptcy, because their liability is due to their own agreement with the creditor and they have no separately existing rights against the debtor. This is often the case when one spouse, or ex-spouse files for bankruptcy. Bankruptcy can have a major affect on debts owed by both spouses, and therefore property division, but if the divorce agreement doesn't appropriately address this possibility, the non-debtor spouse may have few or no options. For more information about cosignors or the interplay of divorce and bankruptcy you may want to review these other posts:
I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?
I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #4: Jurisdiction over Your Assets
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #3: Jurisdiction over Your Debts
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #2: Domestic Support Obligations
4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #1: The Automatic Stay
Once you've identified your exposure in a bankruptcy, the last step is to determine if you need help in limiting that exposure. Should you hire a bankruptcy attorney to help you evaluate your claims?
Wednesday, October 17, 2012
What to do when you receive a Notice of Bankruptcy? Step 2: Are you a creditor?
If you receive a Notice of Bankruptcy you need to determine why you received the Notice. You might be a creditor, an interested party, or a codebtor. Creditors are not the only ones who receive a bankruptcy notice, and even if you're not a creditor you may have an interest in what happens in this bankruptcy case.
The Notice will not tell you why you received it. A sample notice, shown below, doesn't have your name anywhere on it. It does, however, have the name of the debtor and the case number. These two pieces of information should help you determine whether you are a creditor or some other interested party.
The Debtor, whose name is listed on our sample notice above as Sample Debtor, is the person who has asked the bankruptcy court for relief with their debts. If you are aware of a debt that the debtor owes you then you are a creditor and you should review the other information within that Notice. As a creditor you have certain rights that may include filing a Proof of Claim and attending the Meeting of Creditors.
If you're not sure if the debtor owes you money, then you might be a creditor or you might be something else, such as a contingent creditor, a co-debtor, or simply an interested party. To determine why you received this Notice, you must look at the schedules. The Bankruptcy court documents are public record and may be reviewed at the court or online if you have a Pacer access account. If you need help accessing these files any bankruptcy attorney will have an online account access and be able to look up the case file online.
Once you have access to the file, you will want to review the Bankruptcy Petition and Schedules to figure out where your name appears. If you are a creditor then your debt should be listed in one of the Schedules of Creditors.
If you are not a creditor you may still have an interest in the bankruptcy proceedings for some other reason. For example a codebtor (someone who is also responsible for a debt that the debtor owes) could be left being wholly responsible for a debt if the debtor is discharged of that debt. You might be a codebtor if you cosigned for a loan for the debtor, or if they cosigned for a loan that you took out, or if you borrowed money together for any reason (such as co-owners of a house with a mortgage). Codebtors are listed on the Schedule of Codebtors.
If you are not a codebtor or a creditor then your name may still appear somewhere else in the schedules, identifying why you received the Notice. For example, you may receive a Notice of Bankruptcy if you have a lease or other contract with the debtor, even if they are not behind on their payments. Reading all of the schedules carefully should help you discover why you received the notice, whether you are a creditor, codebtor or some other interested party.
Once you identify why you received the Notice, you can begin to evaluate what type of action you should take. For example the Notice tells creditors what many of their rights and obligations may be. The next step, therefore, is to identify: What are the important dates and deadlines I should keep in mind?
The Notice will not tell you why you received it. A sample notice, shown below, doesn't have your name anywhere on it. It does, however, have the name of the debtor and the case number. These two pieces of information should help you determine whether you are a creditor or some other interested party.
The Debtor, whose name is listed on our sample notice above as Sample Debtor, is the person who has asked the bankruptcy court for relief with their debts. If you are aware of a debt that the debtor owes you then you are a creditor and you should review the other information within that Notice. As a creditor you have certain rights that may include filing a Proof of Claim and attending the Meeting of Creditors.
If you're not sure if the debtor owes you money, then you might be a creditor or you might be something else, such as a contingent creditor, a co-debtor, or simply an interested party. To determine why you received this Notice, you must look at the schedules. The Bankruptcy court documents are public record and may be reviewed at the court or online if you have a Pacer access account. If you need help accessing these files any bankruptcy attorney will have an online account access and be able to look up the case file online.
Once you have access to the file, you will want to review the Bankruptcy Petition and Schedules to figure out where your name appears. If you are a creditor then your debt should be listed in one of the Schedules of Creditors.
If you are not a creditor you may still have an interest in the bankruptcy proceedings for some other reason. For example a codebtor (someone who is also responsible for a debt that the debtor owes) could be left being wholly responsible for a debt if the debtor is discharged of that debt. You might be a codebtor if you cosigned for a loan for the debtor, or if they cosigned for a loan that you took out, or if you borrowed money together for any reason (such as co-owners of a house with a mortgage). Codebtors are listed on the Schedule of Codebtors.
If you are not a codebtor or a creditor then your name may still appear somewhere else in the schedules, identifying why you received the Notice. For example, you may receive a Notice of Bankruptcy if you have a lease or other contract with the debtor, even if they are not behind on their payments. Reading all of the schedules carefully should help you discover why you received the notice, whether you are a creditor, codebtor or some other interested party.
Once you identify why you received the Notice, you can begin to evaluate what type of action you should take. For example the Notice tells creditors what many of their rights and obligations may be. The next step, therefore, is to identify: What are the important dates and deadlines I should keep in mind?
Thursday, April 5, 2012
What does it mean if someone listed me in their bankruptcy as a Co-Debtor?
The reason that the code requires that all co-borrowers receive notice is because whenever there is a joint debt, the individual co-borrowers have “contingent, unliquidated claims” against all the other borrowers. Put another way, if Danny and Alice borrow $5,000.00 jointly, and Danny doesn’t pay , the lender can sue Alice and force her to repay all of the $5,000.00. Alice can then sue Danny and force him to contribute to the payment of the judgment obtained against Alice. However, in the event Danny files for bankruptcy, neither the original lender, nor Alice can sue Danny in an attempt to collect the balance even if the lender seeks to collect against Alice.
In this case, Alice would be best served to speak to a bankruptcy attorney, because she has a very limited time to do what she can to protect her claim, if anything. Alice’s right to collect any money from Danny is very fact specific, and the whole story will determine whether Danny’s “contingent” debt to Alice can similarly be discharged. If you find yourself owing a joint debt with someone who has recently filed for bankruptcy , contact Attorney Matthew P. Trask to discuss your rights and obligations.
To read more about co-debtors and bankruptcy, see our post What happens to my Cosigner if I file for Bankruptcy.
Monday, September 12, 2011
FAQ #16: Who will know about my bankruptcy?
The bankruptcy code requires that you disclose all debts owed, and those creditors will be sent Notice of the bankruptcy filing. Therefore, anyone that you owe money to will learn about your bankruptcy.
Additionally, many bankruptcies are filed to discharge un-liquidated or contingent claims – claims arising from a lawsuit, for example – so the adverse party in the lawsuit will be aware of your filing.
Co-debtors must also be disclosed and will receive notice of filing; as will anyone that holds a leasehold interest with the debtor, such as a landlord or tenant, regardless of whether the rent is up to date.
In addition, bankruptcy is a court case. The existence of a court filing in any court is a matter of public record, so there will be a public record of a bankruptcy filing. However, this does not necessarily mean that the information will be easily obtainable by the general public. For example, in order to view bankruptcy case documents, one must either go to the Federal Courthouse in the district where the case was filed, or have the requisite credentials to obtain a PACER account (on-line access to Federal Court records). Third-party agencies can also determine that a case was filed through various public records search engines. Credit reporting agencies (Equifax, TransUnion and Experian) are able to obtain similar information. This means that anyone authorized to review your credit report will see your bankruptcy, such as prospective employers conducting an authorized background check or loan officers acting on a credit application.
Wednesday, August 3, 2011
Do I have to report loans that I Co-signed for in a Bankruptcy?
In bankruptcy you are required to disclose all of your assets and liabilities. A loan that you co-signed for is a liability. Even though you may never be asked to pay the loan, if the primary borrower makes all necessary payments, you are still liable for the loan and must report it.
When you file for bankruptcy you are required to disclose if any of your debts have co-debtors, as well. A co-debtor is someone who also agreed to pay that debt, in this case the primary borrower. Even if the debtor is discharged of their obligation for a debt, the primary borrower will still owe the debt.
In many cases, the filing of bankruptcy of one of the borrowers, even a co-signor, will constitute a default on the loan and the creditor can then accelerate the loan against the primary borrower if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the primary borrower continues to make timely payments.
If you are a primary borrower on a loan and the co-signer is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the co-signer intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.
When you file for bankruptcy you are required to disclose if any of your debts have co-debtors, as well. A co-debtor is someone who also agreed to pay that debt, in this case the primary borrower. Even if the debtor is discharged of their obligation for a debt, the primary borrower will still owe the debt.
In many cases, the filing of bankruptcy of one of the borrowers, even a co-signor, will constitute a default on the loan and the creditor can then accelerate the loan against the primary borrower if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the primary borrower continues to make timely payments.
If you are a primary borrower on a loan and the co-signer is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the co-signer intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.
Monday, May 2, 2011
What happens to my Cosigner if I file for Bankruptcy?
Update: Because of the extensive interest in this topic, we have written two follow-up posts which more specifically address these issues from the standpoint of either the primary borrower (i.e. the person who is gaining the advantage from the loan, whether it be an education, car, home, etc.) or the co-signer (i.e. the person who signed the loan usually just to assist the other person in qualifying):
I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?
Original Post:
When you file for bankruptcy you are required to disclose if any of your debts have co-debtors. A co-debtor is someone who also agreed to pay that debt, which includes co-borrowers, co-signers, and guarantors. Even if the debtor is discharged of their obligation for a debt, the co-debtor still owes the debt.
In many cases, the filing of bankruptcy of one of the borrowers will constitute a default on the loan and the creditor can then accelerate the loan against the co-debtors if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the co-debtor continues to make timely payments.
If the creditor has already sued both the debtor and a co-debtor that collection action can usually continue against the co-debtor, except in the case of a Chapter 13 which specifically protects co-debtors from collection actions during the pending bankruptcy.
If you are a co-debtor on a loan and the borrower is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the debtor intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.
I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?
Original Post:
When you file for bankruptcy you are required to disclose if any of your debts have co-debtors. A co-debtor is someone who also agreed to pay that debt, which includes co-borrowers, co-signers, and guarantors. Even if the debtor is discharged of their obligation for a debt, the co-debtor still owes the debt.
In many cases, the filing of bankruptcy of one of the borrowers will constitute a default on the loan and the creditor can then accelerate the loan against the co-debtors if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the co-debtor continues to make timely payments.
If the creditor has already sued both the debtor and a co-debtor that collection action can usually continue against the co-debtor, except in the case of a Chapter 13 which specifically protects co-debtors from collection actions during the pending bankruptcy.
If you are a co-debtor on a loan and the borrower is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the debtor intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.
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