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What Happens to the Car If a Co-Signer Files Bankruptcy?

Robert wants to know what happens to the car if a co-signer on a car files bankruptcy. Dave explains.

QUESTION: Robert in Texas wants to know what happens to the car if a co-signer on a car files bankruptcy. Dave explains.

ANSWER: If you have a car and the person that co-signed for you files bankruptcy, that means the car is in your name and the loan is in your name, only the co-signer has gone bad. If you were to notify the bank that you know this is going on, that you will be keeping the car and you will be paying the payments and it won't skip a beat, then you won't have a problem as long as you pay the payments and that kind of a thing. It won't hurt your credit score as long as long as you pay the payments on time, because that's what affects your credit score. Just because you were in partnership with someone who failed does not mean that you're going to fail—does not mean your credit score goes bad unless it causes the payment on the loan to not be paid on time. So you pay the loan on time, you keep the car, then your credit score will not be affected. Nothing happens except they no longer have a co-signer on this loan because they've gone bankrupt.

One thing you do need to keep in mind, though: it may very well show on your credit bureau report that the loan has gone into bankruptcy. Not you, but the loan has, because that would be true. Your co-signer has filed bankruptcy, and so that particular loan is reported as bankrupted, and that would be at least partially true. That shouldn't damage your credit score. If it does, just stay on top of it, dispute it, and work it through with the credit bureau. Technically, your credit score should not be affected by something you didn't do so long as the loan involved is paid on a timely basis.