Bankruptcy and consumer proposals can have an impact not just on the person declaring bankruptcy or filing a proposal, but also on anyone who may have cosigned for one of his/her debts as well. Here’s what you and your cosignor need to know:
- Cosigning for a debt means you are taking legal responsibility for that debt if the person who borrowed the money can’t repay it. In other words, if the person you’ve cosigned for happens to go bankrupt, the creditors will expect you to take over the payments. Before cosigning on any debt, you should be certain that you’ll be able—and willing—to meet that expectation.
- Likewise, before asking someone to cosign for you, you might want to take their financial circumstances into account along with your own. Your parents may be willing to cosign for you, for instance, but if they’re already stretched with their own debts, it may not be fair to ask them.
- If you’ve already cosigned for someone’s debt and you’re the one to declare bankruptcy or file a proposal, the person who borrowed the funds could still be affected, especially if the debt is in the form of a credit line. As long as your name is on the debt, your trustee must notify the creditor of your circumstances, and the creditor may then choose not to release any further funds to the person for whom you cosigned.
- Regardless of the borrower’s financial situation, any debt you cosign for will still show up in your own credit rating. If you’re looking to borrow funds of your own down the road, the presence of that cosigned debt may have an impact on whether or not a creditor is willing to lend you any money.
If you have questions or would like more information about the impact of bankruptcy on a cosigned loan, call today for a free, no-obligation consultation with one of our insolvency experts: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926 or book online.