Tag Archive: co-debtors

  1. To Co-Sign or Not??

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    Adding a co-signer can make a loan more attractive to lenders, but can cause serious repercussions if the co-debtor defaults.

    A common question many of us face is whether to co-sign for a loan. Initially, co-signing a loan seems like a nice and supportive gesture. But helping a close family member or friend by co-signing can have major impacts on the future of your financial health.

    Before you co-sign on a loan there are a few important things to consider:

    • First, in the event the person you co-sign for cannot pay the loan, you will be the one who is responsible.  By becoming a co-signer, you are essentially taking on someone else’s debt. You are putting the future of your financial health into someone else’s hands.  If they are unable to pay off the loan, you will be completely responsible to pay it off for them.
    • Next, co-signing can have a negative impact on your credit.  Because of the debt you have taken on, your credit score can drop.  Additionally, it will be harder for you to qualify for loans you need because of the increase in your debt-to-income ratio.
    • Lastly, although co-signing can make a loan more attractive to lenders, there are serious repercussions if the co-debtor defaults. This is the worst-case scenario and negative impacts may include you having to pay the money back in its entirety, a lower credit score and your bank account could be frozen.

    Overall co-signing is a long-term commitment to take on someone else’s financial debt.  This is where The Debt Doctors can play an important role in helping you to decide if you should co-sign or not. You can schedule a free consultation today and receive the guidance you need to make the best decision for your financial future.

  2. The Impact of Bankruptcy On Co-Debtors

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    Bankruptcy can have a big impact on a co-debtor or co-signer. This makes it crucial to understand how bankruptcy works from the beginning in order to avoid surprises down the road.

    It is crucial for co-debtors and co-signers to understand how bankruptcy works from the beginning.

    Liability

    A common confusion pertaining to bankruptcy is the co-debtor’s liability to pay off debt.  It’s important for a co-debtor or co-signer to know that even if the person who has filed for bankruptcy is relieved of paying their debts, the co-debtor is still liable.  Bankruptcy only nullifies the contract for the person who filed, their co-debtor is still bound to the contract. This means they will be required to continue payments on any co-signed debt after bankruptcy filing. This is necessary in order to maintain a positive credit report.

    It’s also important to know the filer has the option to voluntarily repay any debt after bankruptcy. They are not required to do so but the option is available.

    Credit

    Another important element pertaining to bankruptcy’s impact on co-debtors is their credit. This is especially important for a married couple. A common misunderstanding regarding credit is once a couple gets married their credit combines.  This however is not true. Each person has their own credit and it’s important to establish that from the beginning.

    If you are facing financial hardships, it’s best to file for bankruptcy before you get married.  This enables you to start your marriage with a clean slate and without any financial burdens.  Additionally, if you get a divorce you are able to move on more easily with regards to your finances.

    Protection

    A co-debtor’s protection under bankruptcy depends on the type of bankruptcy that is filed.  If a Chapter 7 bankruptcy is filed, the co-debtor must repay the debt. However, if a Chapter 13 bankruptcy is filed and the filer follows the plan accordingly, the co-debtor is protected under “co-debtor” stay.

    Ultimately it’s important to set up a free consultation with The Debt Doctors to further understand the impacts bankruptcy will have on an individual’s finances. Additionally, speaking to an attorney will better prepare a co-debtor with the necessary steps to take after filing for bankruptcy.

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