Co-signing and chapter 7...

[RBisDebtFree]

Hello,

My wife and I have successfully completed chapter 7 bankruptcy process and were discharged. We are planning to buy a family car right now and have a sizable down payment (at least 50%). We could buy it cash but don't want to stay low on cash on hand and also want to let that auto loan help our credit history.

We were approved for an OK interest rate but if my wife's parents sign up, our interest rate will be much lower by about 2-3% which is significant over multiple years of re-payment. They want to co-sign with us and the risk for them is very low because of so much equity in the car.

Now here's my question: they are not planning to but they might hypothetically have to file for CH7 as well *if* the mortgage company sues them after foreclosure (foreclosure already happened). They don't want to file if nobody will sue them so that should make sense.

Now, my question is: let's say they file down the road and we have paid the car down to a point where there's $15k equity in the car. It's all OUR money and PARENTS'. How will bankruptcy court treat it? Is it something that they will be able to take with no questions asked? Or will they have to buy it out from us or put a lien on it? How would that work?

I know the easiest would be not to have them co-sign with us but the chance that they will file is very slim and the benefits for us (lower interest) and them (positive credit reporting) is obvious.

Please share your opinion and advice, any information is greatly appreciated! Thank you!

[SMinGA]

If they are the cosignor, it should have no impact on you or the car. Cosignors are not normally on the title, so they would not have ownership interest in the vehicle. Just their obligation to pay would be wiped out, yours remaining.

[RBisDebtFree]

That sounds pretty good, I guess I would need to make sure that they don't get on the title. Thanks for the thought!

[RBisDebtFree]

So I just checked with the credit union and they say that co-signors will have to be on the title. How does that affect me and the car? Is there anything I could / should do? I probably can't put a lien on a vehicle that I co-own...

[blessed]

That isn't how it works in my state (Ohio). My husband has an individual car loan for my car, and my name is the only one on the memorandum. Well other than the lien holder.

(He had the better credit when I needed a new car so he got the loan. For registration purposes and because it's "mine" he put my name on the title.)

[SMinGA]

If the cosignor is on the title, the cosignor owns a share of the car. So if they file, the equity that they own (in addition to any vehicles they own on their own) would need to be exempted.

[RBisDebtFree]

That's what I thought. Do you think if I would put a lien on the vehicle then I could protect the equity in it? Because I am the one putting the down payment and making all the payment and even keeping up the insurance and maintaining the vehicle.