Many people who are in debt need a co-signer to sign loans, which is a great way for a debtor to build their credit score. The problem is, it might be hard to get a co-signer to sign your loan. That is because a co-signer is essentially on the hook and responsible for paying back the debt if the debtor is unable to. If your co-signer files for bankruptcy, you must take over the payments or your own credit rating will be affected for the worse.

If you have a co-signer on a loan and you are contemplating filing bankruptcy, it’s best to talk to them first. If you don’t, you may end up getting an angry phone call from your friend saying that the bank called them and now the entire loan is due immediately! If you warn them in advance, they may decide to call the bank and switch the loan into their name, so they can keep making the payments themselves.  From your co-signer’s point of view, it’s generally best to be proactive and talk to the lender as soon as possible, so that payment arrangements can be made before the loan goes into default.

If you are considering co-signing for someone, make sure that person is very responsible. Also, only co-sign on loan if you are able to pay off the debt in the event of a default. It may be less of a risk if you are co-signing on a small loan to help a friend or family member get a credit rating, but it is a bad idea to co-sign with someone who is already in financial trouble. Unless they have made real changes in their spending and income levels, you are probably going to end up paying off their debt.

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