How Bankruptcy and Repossession Affects a Cosigner’s Credit
When you purchase a vehicle, your creditor may require a cosigner. A cosigner, also known as a guarantor, is responsible for paying back your debt if you cannot, acting as a kind of insurance for creditors. To prove they can be held responsible for your debts, cosigners need a strong credit score. If you file for bankruptcy and repossession, you may worry about how your decision will affect your cosigner’s credit. Below, the Groce & DeArmon bankruptcy attorneys provide some helpful answers.
Cosigner Responsibilities For Bankruptcy and Repossession
In a bankruptcy and repossession case, a cosigner is responsible for paying any leftover debts you cannot pay. The repossession process is relatively simple. To recoup any lost money, a creditor will first attempt to sell your vehicle at auction. Because a vehicle’s value usually depreciates over time, a creditor most likely will not recoup all of their money. If this is the case, the creditor will turn to you to pay the rest of the money, but if you cannot pay, your cosigner is held responsible. If the cosigner cannot pay, the creditor can sue in court.
Your Cosigner’s Credit
Generally, your decision to file for bankruptcy and repossession should not hurt your cosigner’s credit. Although they are held responsible for your debts, their credit score should remain the same. Unfortunately, in some cases, problems may arise.
Ten or fifteen years ago, cosigners would have been grouped into your bankruptcy and repossession case, which negatively impacted their credit score. This occurred because the standard credit reporting system at the time (known as “Metro”) assessed credit reports by accounts, not individuals. If one person on an account filed for bankruptcy, everyone was included for credit reporting purposes.
Today, credit reporting institutions use a modified reporting system called Metro 2. Instead of assessing credit reports by accounts, Metro 2 assesses by individuals, so when you file for bankruptcy and repossession, you should not impact your cosigner’s credit. Although Metro 2 is the standard, some credit reporting institutions have stuck with the old system. The chances of your bankruptcy case affecting your cosigner’s credit may be slim, but problems still occur on occasion.
Contact Groce & DeArmon, P.C.
Bankruptcy and repossession can be a complicated and confusing process. To make sure you have the protection you need, seek legal aid from a bankruptcy attorney. At Groce & DeArmon, our team of experienced attorneys ensures you know your rights by giving you the tools you need to understand bankruptcy, foreclosure, and repossession. To get the legal aid and representation you need, contact Groce & DeArmon today.