- A co-signer is a person who signs a credit application with another person because the other person isn't creditworthy on his own. The bank may ask for a co-signer if the person who wants the loan has bad credit or no credit. A borrower may seek a co-signer with good credit because he wants better loan terms. A co-signer reduces the bank's risk, because if the main account holder defaults on the loan, the bank can get the money from the co-signer. As a co-signer, you're telling the bank that if the account holder doesn't pay, you'll pay.
- Consumer bankruptcy discharges the bankruptcy filer's liability on certain debts. The discharge doesn't get rid of the debt itself; rather, it gets rid of the legal obligation to repay. The discharge is personal to the individual who files bankruptcy; it applies to her and to her legal obligations only.
- Because the bankruptcy discharge is personal to the filer, anyone who's obligated on the same debt who doesn't file bankruptcy is still responsible for the debt. For example, if you co-sign on a credit card with your daughter because she has bad credit, and she uses the credit card and files bankruptcy later, she's no longer responsible for the credit card, but you're responsible for the entire balance.
- If you're a co-signer on a credit card or personal loan and the person for whom you co-signed has filed bankruptcy, you have to repay the loan. Any defaults on the loan after the other account holder receives his discharge affects your credit. You can try to work out a repayment arrangement with the lender, you can try to settle the debt or you can file bankruptcy yourself to get rid of the debt.
- If you co-signed a student loan, the student is still responsible for the payments after her bankruptcy, because with limited exception, you can't discharge a student loan. You still risk liability, however, because even if she can't discharge the debt, she may still be unable to pay it, and if she doesn't pay it, you have to.
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