It’s a common but difficult problem. If someone co-signs for a credit card or other loan for someone else, and if the person defaults on the account, then the co-signer become primarily responsible just like the original borrower. But what if the original borrower can’t be found and the co-signer is not able to make the payments or pay-off the debt. In California and elsewhere, the most effective solution is to file a personal bankruptcy. That will eliminate the debt for certain.
But let’s say the co-signer hesitates in filing a personal bankruptcy. The debt keeps rising due to the accumulating interest. They sue and get a judgment. Then one’s checking account is frozen one day.
The co-signer lets them keep the small balance but stops using checking accounts so that they can’t do that again. The co-signer ends up trying to handle everything in life on cash and traveler’s checks. It’s a living nightmare!
If the debt is substantial enough to cause serious discomfort and there are other bills that are behind, then a bankruptcy provides a strong resolution. Start the process by consulting with an experienced consumer bankruptcy attorney. In a straight bankruptcy, i.e., a Chapter 7, 100% of all unsecured debt, including credit cards, medical bills or any unusual debts like the co-signed fiasco mentioned above, can be eliminated.
Bankruptcy is a federal remedy that effectively discharges your unsecured debt, and reorganizes or resolves your secured debt appropriately. Once filed, a federal automatic stay is issued that prevents all further collection activities against the debtor. Although assets may be liquidated to pay creditors, that rarely happens in a typical consumer case. Usually, basic household belongings, clothing, some jewelry, and other furnishings are exempt from liquidation.
In California, if you have a home with a mortgage, you can reaffirm the mortgage in a Chapter 7 personal bankruptcy, keep making the payments as usual and get a discharge on all of your remaining debt. The same principle of reaffirmation applies to a car loan. All of these options, however, are dependent on the facts of the particular case so that it’s important to obtain a thorough evaluation with bankruptcy counsel prior to taking any action.
Source: Source: Top News Today, “Money Talk: Consider bankruptcy to deal with co-signer credit card debt,” Lisa Weston, July 15, 2013