Are you a loan guarantor or co-signer worried about what happens in bankruptcy? It is essential for family and friends to understand their obligations when someone files for bankruptcy protection. Guarantors are only financially responsible when the debtor fails to pay. In contrast, co-signers are entirely “in it” and have full rights. Co-signers jointly own or control what is at stake, such as apartments, motorcycles, or anything else about an agreement. In this blog post, learn more about the differences between loan co-signers vs. guarantors and how they are impacted by bankruptcy.
A co-signer signs a loan with you to take on the part of the responsibility for repayment. The co-signers name will appear on the loan agreement alongside your own. They will be held liable immediately for any missed payments or defaults along with you. Suppose you fail to make payments on time or default on the loan entirely. In that case, the lender may immediately seek to collect from the co-signer and from the primary loan signor.
In addition, co-signers are usually (but not always) co-owners or co-tenants of property. Co-signers typically have the right to occupy a rental dwelling along with the main signor of a contract. Or, with a car loan, a co-signer will jointly own the vehicle purchased. Essentially, the co-signer is “right there in it” with you almost all ways. You are genuinely in the loan or lease situation fully together.
A guarantor agrees to guarantee your loan by promising to pay it off if you fail to do so yourself. A guarantor does not necessarily need to be named on the original loan agreement. They will be responsible for any missed payments or defaults while their guarantee is in place.
Unlike a co-signer, a guarantor will only be contacted by the lender if you fail to make payments. They must first get permission from the lender themselves before they can cancel their guarantee. This means that it’s important to ensure that any guarantor understands their obligations before signing up for this role. A guarantor can be a family member, friend, or even a third party, such as a corporation or the government. Sometimes a borrower is forced to pay to have a guarantor added for a certain monthly fee. Some lenders will only lend to a particular party if a guarantor of some nature is added to the loan.
Co-signing a loan can be risky. If the other signer fails to pay, the debt entirely becomes yours. Sometimes, the best way for a co-signer to deal with these debts is to file for bankruptcy. In most cases, bankruptcy proceedings give co-signers relief, but not all co-signed loans can be discharged. Co-signers may still be responsible for payment of all or part of the loan, such as with student loan situations. It is best to consult with a bankruptcy attorney.
Guarantors can be held accountable for loan repayments if the principal borrower fails to make payment. This situation may lead to a bankruptcy filing to protect a guarantor from a significant financial burden. Bankruptcy provides debt relief, including cleaning outstanding debts and reporting to credit bureaus. It also instantly protects from further credit action. Once again, it is best to seek out the advice of a bankruptcy attorney. An attorney can advise you whether bankruptcy is the right option for your particular situation and help you navigate the bankruptcy process.
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