Minnesota bankruptcy: What cosigners should know
For this kind of expert advice, both parties should speak to a Minnesota bankruptcy attorney who can help you make the right steps to protect their finances.
In order to gain more favorable interest rates on or approval for car loans, student loans or mortgage loans, it’s not uncommon for Minnesota residents to offer to act as cosigners for friends or relatives who have fallen on hard times financially or who do not yet have a credit history to support the loan. Since this tactic spreads the risk in the transaction, often to those with better credit scores and financial histories, the co-signee can see many benefits from this arrangement.
However, as a cosigner in Minnesota, it’s important for you to fully understand the risks that you’re taking on. For example, in the event that the co-signee defaults on a loan, or has trouble meeting their part of the payment process, the cosigner could be held responsible for all or part of the original financial obligation.
In this situation, it is important for those filing protection and their cosigners to speak about this financial action. For instance, depending on the kind of bankruptcy the primary borrower chooses, the cosigner could be asked to provide varying levels of coverage for the liabilities.
In Chapter 13 bankruptcy, the co-signee may benefit from moving for a cramdown, which diminishes the size of the outstanding loan, and minimizes the liabilities the cosigner may face. By comparison, in a Chapter 7 bankruptcy it may be beneficial for the borrower to sell the asset – whether it’s a car or a house – to reduce the outstanding debt that would be left to the cosigner.
Regardless of which position you fall into in this scenario, it’s important for you to know how this move could benefit your finances. For this kind of expert advice, both parties should speak to a Minnesota bankruptcy attorney who can help you make the right steps to protect their finances.