Many families find themselves facing unfathomable financial hurdles these days. Married couples who bought a home together are strained under the pressures of a lost job, declining income, ballooning mortgage payments, and all the other expenses of modern living. When signing as a cosigner to a loan, it's very important to remember your financial obligations. These can tear a family apart. For example: let's imagine you marry happily, buy a home with your new spouse and begin a family. Within five years the marriage sours and you divorce. You give up the house in order to take full parental rights. Next thing you know, creditors are knocking on your door, informing you that your ex filed for bankruptcy and the court has agreed to the claim of the creditors to have you pay the rest of the debt. Even in a divorce, if you cosign a loan, you are fully responsible for it.
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A co-signor is always responsible for a loan if the principal borrower defaults and files for bankruptcy. The legal claimants to the note have full authority to require the co-signor to pay for it. This is yet another reason to be very careful when agreeing to co-sign with anyone, even your own children. If you are the principal owner of a debt, your co-signors can still be hurt by you. That's one aspect of being a co-signer: if you, as the principal, are not as reliable a debtor in your credit history or income, you can use a co-signer to boost your chances of getting a loan, if that co-signer appears less risky an investment to the creditors than you do. This arrangement is especially bitter among families who go bankrupt, as they have often co-signed among extended relatives and spread the pain of the debt through their own actions.
First and foremost, seek financial counsel from a bankruptcy lawyer. They can best judge when overlooking all of your finances and assets how dire your situation really is. Often, trimming expenses, renegotiating the debt, and taking a second or even third job are all that are necessary to avoid bankruptcy. Many pizza delivery jobs, for example, pay over a thousand dollars a month. A bankruptcy to a creditor is a threat, even if there are solvent cosigners on the loan or other obligatory document. Because a bankruptcy is a threat to creditors, they are highly interested in ensuring that their debtors do not pursue the option. If lowering the debt guarantees that the debtor can pay it back, they often will do so, only to reap back a part of the debt rather than nothing.
In sum: your co-signors are responsible for your debt if you go bankrupt. If you do file for bankruptcy, make sure your cosigners know beforehand so they have plenty of time to map out their strategy for getting themselves out of the debt as well.
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