Louisiana parents may find it difficult to refuse a request to co-sign a loan — particularly if it is for a child who is just starting out and trying to build a credit history. However, this merits careful consideration. Learning about the risks and gaining an understanding of the remedies, including bankruptcy protection in some circumstances, is likely prudent.
The credit reports of both the parties will show the payment history on a co-signed loan, and any late payments or missed payments can adversely affect the co-signer’s credit score. Unless special arrangements are made, the co-signer will not be aware of any late or missed payments because notifications are usually only addressed to the primary holder of the account. If mismanaged loan payments lead to collection activities, the co-signer will likely be the target of the lender, because that is the person with collectible assets.
Secured loans are protected by designated assets. Typically, those are the assets of the co-signer. This means that non-payment may lead to repossession of the co-signer’s property, something which will also appear on his or her credit history. If the co-signer applies for a personal loan before the co-signed loan is paid off, it may be difficult due to the impact it will have on his or her debt to income ratio.
Fortunately, all consumers are protected by the Bankruptcy Code, and anyone in Louisiana who is in such a situation may want to seek guidance from an experienced bankruptcy attorney. A lawyer can assess the circumstances and explore the available options. A seasoned attorney can provide a client with the necessary information to make informed decisions. Whichever choice is made to proceed, the lawyer may prevent the loss of property, and help with establishing renewed financial stability.
Source: timberlinefinancial.com, “Who Is Responsible for Cosigned Debt?”, Ryan Sasson, Accessed on Dec. 30, 2016