My parents are co-signed on my car loan. What happens to them if I file bankruptcy?

You already know the answer to this:   You get off Scott free and they get sued by the bank.

Let’s say you file a chapter 7 bankruptcy and give up your car, telling the bank to come and repossess it.  You get a discharge of the debt and the bank cannot sue you for any deficiency that results in the loan amount after they auction the car off and apply the sale proceeds to the loan.  However, if you have a co-signer, then the bank can still sue them for the deficient balance.  This means that Mom and Dad get sued and they take a bad credit hit.

You can reaffirm the car loan in your bankruptcy, but if you’ve fallen behind, then your co-signers will still face bad credit issues because of your late payments.

On the other hand, so long as you’re current and reaffirm the debt, then it should not hurt Mom and Dad’s credit, and no one gets sued by the bank.

This is not legal advice.  If you need help, go to www.robertspaynelaw.com.

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