Bankruptcy question

If my sister files for bankruptcy and one of our parents co-signed on her new vehicle how will it affect my parent’s credit?

Also, if she is not on the loan for their house, but is on the deed can their house be taken?

I dont know about the house but if they co-signed on the vehicle then they a legally obligated to take over payments. They will not take a credit hit as long as they keep up the payments or sell the car and pay off the loan.

On the discussion forums on www.creditnet.com I have seen situations before where people were in similar situations and wound up with BK notations on THEIR credit files.
The credit rating agencies are not all that smart, and much of their computerized systems can be subject to substantial… dimwittedness.
I would suggest that your sister:
A) tells mom & dad about the impending bankruptcy
B) sells the car
and mom & dad
A) make up the difference on what your sister makes vs what’s owed on the car.
This could probably prevent a bankruptcy showing up on their credit reports, which otherwise could happen.
By the way, your sister should take out a loan WITH YOUR PARENTS. When you’re in bankruptcy, it is illegal (in Ohio at least) to repay individual debtors at any rate in excess of what has been agreed with the courts.
Your sister wants mom & pop to be creditors, so she can repay them legally (at least in part) and so she can keep as much money as possible in the family.
After all, your sister will owe them in this scenario, 'cuz new cars depreciate like toilet paper.

Oh, and BTW, get her off the house deed pronto. I believe her share in the house may be at risk. And she may even want to wait to file after doing so.
In at least one state, (North Carolina) the courts can reverse business transactions going back six months in order to prevent people from just dumping their assets the day before bankruptcy.
I am not a lawyer, and your sister and parents most definitely need to consult one who specializes in this field.

Our parents are 70 years old and on a SMALL pension and social security - they can not pay her 1000 a month car payment. (she got laid off for a year now). She’s not going to get any sort of loan without working either. No one can afford a loan any way it’s looked at.
So, it WILL affect their credit… geeze, I hate that. I will look at that website to see if it says anything about their house.

  1. You can sometimes “affirm” a debt and not have it included in your bankruptcy petition. In other words, your sister can say that the car is a required asset (i.e., needs it to get to or look for work) and shows proof that she can handle the debt. Only certain debts qualify for “affirmation.”

  2. Your primary residence generally cannot be seized in bankruptcy.

Each person’s situation is different and your sister needs to talk to a bankruptcy attorney since she jointly owns several assets.

BTW, selling or otherwise disposing of any assets within a certain period of time (a year?) prior to declaring bankruptcy opens the door for that sale or transfer to be nullified (can’t remember the legal term for it). By no means seek to transfer ownership of any assets.

Thanks Cillasi. She isn’t planning on transfering any assets. My biggest concern is that my parents may have their credit destroyed from co-signing on that vehicle.

IAA(Bankruptcy)L, at least until I change employers at the end of this week. The information given so far is of mixed accuracy. Your sister’s house may or may not be at risk, depending on Ohio exemptions (with which I am not familiar) and the amount of equity she has in the house. This is generally the first thing a bankruptcy lawyer will enquire about, and he or she will rarely recomend a bankruptcy filing that will put a house a risk.

If your sister is current on car payments, most likely she will have the option of reaffirming the debt, keeping the car and continuing to pay.

Your parents probably should look at their credit reports when this is over, as its quite amazing how much erroneous stuff can get on to them. (BTW, a bankruptcy lawyer may not know all the credit wrinkles a filing may have.)

I’d like to go into a little more detail, but I have to leave for work.

If a bankruptcy notation pops up on their credit report, just have them dispute it. All three bureaus will delete the notation on a cosigners credit report without question now, as they just lost a lawsuit based on this very problem.

This is hot off the presses, so some creditnet watchers may or may not know. If mom and dad don’t have a public record for a bankruptcy, and they dispute it, the bureaus won’t even dispute it, they’ll take it off. They have agreed to this action as a result of the lawsuit.

Cosigning: Whoever signs is as equally responsible to pay the debt as the other. The whole point of cosigning is to levy the power of more than one borrower, so that the lender sees the loan as lower risk. In all fairness to the lender, the cosigner should pony up the money.