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  1. #1
    Join Date
    Jul 2014
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    1

    Default What is the Impact on a Student Loan Cosigner when the Borrower Files Bankruptcy

    My question involves bankruptcy in the state of: Minnesota

    Hello - I am about to file for chapter 7 bankruptcy. I am very concerned about the impact this may have on my sister who recently cosigned a private student loan for me. The private student loan co said that if I file it will merely shift the payment obligation over to her, which she and I agree is fine. But are there larger derogatory consequences that she will bear, other than the student loan debt added to her own debt load? I am looking for solid information. (Imagine yourself in my spot.) I want to know for certain that she will be okay.

    THANKS!

  2. #2
    Join Date
    Sep 2011
    Location
    OH10
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    17,019

    Default Re: Is There Derogatory Impact on Student Loan Cosigner when Borrower Files Bankruptc

    That would likely trigger a major hit to her credit. You are assuming prior student loans will be forgiven. Rarely are they even in a CH 7 if they are through the government.

  3. #3
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    2,344

    Default Re: Is There Derogatory Impact on Student Loan Cosigner when Borrower Files Bankruptc

    If you do not pay your student loan then your cosigner must pay it. If she does not pay it then it will be reported as a defaulted obligation on her credit report and it will harm her credit rating severely. Student loan debt will not likely go away as a result of your bankruptcy, as the previous poster pointed out. Whoever told you it would has given you bad information. But even if it was, say, a car loan the impact on your sister would be the same. Just because you file bankruptcy does not relieve your sister of her promise to the creditor that she would make good if you don't pay. That promise is what induced them to make the loan, and it is her independent obligation.

  4. #4
    Join Date
    Aug 2014
    Posts
    9

    Default Re: What is the Impact on a Student Loan Cosigner when the Borrower Files Bankruptcy

    The prior responses are correct. Your Chapter 7 bankruptcy filing will not directly affect your co-signor. However, if the loan is not paid, or is paid late, your co-signor's credit will suffer.

    The prior posters are incorrect about discharging student loans. There are certainly opportunities to discharge private student loans other than "hardship." For example, some for-profit technical or trade schools do not qualify as an “eligible education institution” because the school is not accredited under Title IV of the Higher Education Act. There may also be defects in the loan, like it was not incurred to pay costs of attendance. If a private student loan does not meet one of the criteria for a nondischargeable student loan, the debt can be discharged in a Chapter 7 or Chapter 13 bankruptcy case and the exception listed in Section 523(a)(8) does not apply. Section 221(d) of the Internal Revenue Code contains a lengthy list of requirements which must be met before a loan can qualify as a student loan. If the loan fails to meet these criteria, the debtor may be able to discharge them in bankruptcy.

    Hope this helps

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