Having a cosigner on your car loan is seen as a kind of "safety net" to your lender. If your cosigner falls into financial trouble and is forced to file bankruptcy, you're left flying solo, without a safety net, as it were. This might not seem ideal, but once the contract is signed, the major role of the cosigner is done. So, how does their bankruptcy affect your auto loan?
How Cosigner Bankruptcy Affects You
Your cosigner's bankruptcy shouldn't affect you much at all – as long as you keep up with your payments. Sure, the cosigner has their name associated with your car loan, but after they allow you to borrow their good credit, the role of a cosigner is only secondary.
If you keep up with your loan payments, there's no reason for your lender to have to contact your cosigner. Additionally, since a cosigner's name is only on the loan and not the title of the vehicle, you're not in danger of their bankruptcy trustee taking your car to liquidate it for equity in order to pay creditors.
This is why your cosigner's bankruptcy doesn't impact you in any significant way as long as you're following the terms of your loan contract. However, one possibility that could arise from your cosigner filing bankruptcy is that your credit reports might list the bankruptcy.
Don't panic. The activity on your credit report(s) isn't showing you in bankruptcy, just the loan. As long as you're making your payments as scheduled, you shouldn't have a problem removing this from your credit reports by working with the reporting bureaus.
You should make sure to contact your lender and let them know that your cosigner has filed bankruptcy, and that you fully intend to repay your loan as promised.
If You're Unable to Keep Up with Your Loan
Once your cosigner files bankruptcy, they are no longer considered an option for repayment if you're unable to pay your loan. This means that if you miss any payments, you're in danger of repossession – just as if you never had a cosigner to begin with.
If you find yourself in this situation after your cosigner has filed bankruptcy, your first step should be to contact your lender. As soon as you think you might fall behind, you should find out from your lender what your options are in order to avoid repossession and keep your loan in good standing. You might be surprised by some choices lenders can offer.
Do You Need a Different Loan?
Do you feel uncomfortable with your current loan because your cosigner filed bankruptcy? If you find yourself in a situation where you needed a cosigner due to your credit, but now your cosigner is out of the picture, you might consider refinancing your current loan or even selling your vehicle and going it alone on your next loan, and we want to help.
If you're worried that your credit is stopping you from getting a loan on your own, then you may not be applying with the right lenders. Here at Auto Credit Express, we work with a nationwide network of special finance dealerships that have subprime lenders ready to work with your situation – whether it be bad credit, no credit, or bankruptcy. See who we can match you with by filling out our simple, no-obligation auto loan request form today!