Bankruptcy Should Not Affect Joint Account Holders or Appear on Report
What happens to your your spouse’s or grandma’s credit when you file Chapter 7 bankruptcy and they cosigned a loan for you?
Are you going to tank their credit score?
Will an ugly included in bankruptcy note be added to their credit as well?
Brief History.
In the most so distant past, the law was such that It if you filed bankruptcy, both you and your co-signers credit reports would indicate the filing on joint accounts. That happened regardless of the fact that you or the co-underwriter continued paying the record on time. That’s just the way it was back then.
Those stone age days in the credit report industry, utilized a system that was automated to capture all accounts where bankruptcy was filed and report to all credit bureaus.
There was no individual assessment of whether a co-signer was still paying or doing anything else.
Enter the 90’s, and a new system was implement that look at each individual borrower. It could not have happened any sooner.
Co-signers who don’t file bankruptcy no longer have to pay a penalty based on the bankruptcy filings of others. No more ugly notation about included in bankruptcy.
If the co-signer continues making payments then he or she gets the credit of those payment as though the bankruptcy does not exist.
Therefore, a co-signer who is current will be have that appear on his or her credit report. Their credit profile will not be negatively impacted.
This change is partly driven by a lawsuit Clark v Experian and the simple fact that this way of reporting is more accurate.
Co-signers beware. Erroneous notations on credit reports occur frequently and this is one is easy to make. Check your credit and contact the creditor to ensure they do it.
I just got a call from a very frustrated debtor because the co-signer had just paid off a vehicle and the creditor had stated that it would show as included in bankruptcy. I believe the representative was sorely mistaken especially considering the co-signor paid the debt off!
Nonetheless,the anxiety and stress caused to the debtor and her co-signer is troubling.
I advised her to take steps to ensure everything is reported correctly and obtain a payoff notice just in case a dispute filing is necessary.
In conclusion, a co-signer who is current on payments should not have his/her credit impacted a co-signer’s bankruptcy filing. There should not be any notation regarding bankruptcy. There should not be a failure to report payments made. No impact at all period.
