Throughout our lives we will be faced with the opportunity to help out family and friends in need of financial assistance. A common way for people to achieve this is through co-signing on a loan. When you co-sign with someone else you make yourself equally liable for the debt with the co-borrower. If everything goes according to plan, the co-borrower will make all due payments on time until the account is paid in full.
But when the person you were trying to help misses a payment, or worse yet, stops paying on the note, you can expect to start getting harassing phone calls and letters. If the account is not brought current some time thereafter, the lender could take the next step in the collection process and file a civil lawsuit against you seeking to recover the outstanding balance. This is a very serious matter because a lawsuit can lead to a judgment that would allow the creditor to garnish your wages from your paycheck or even freeze your bank accounts and remove the funds.
While it’s unfortunate anytime we do something that’s meant to be helpful and it comes back to bite us, here you may have a means for putting it behind you. Filing bankruptcy can eliminate your liability on the co-signed loan, thereby “undoing” your good deed gone bad. If you have co-signed on a loan with someone who has stopped making payments, it may be time to consult with a bankruptcy attorney to investigate your options for resolving the situation.