Your cosigner’s bankruptcy doesn't have to result in repossession, but it may, especially if the payments on the car note aren’t current. Most states allow creditors to enter your property and take your vehicle without notice if you default on the loan. Whether a signer’s bankruptcy filing constitutes a default should be outlined in your loan paperwork.
Upon filing for bankruptcy, your cosigner will be protected by the automatic stay. The automatic stay protects bankruptcy filers from debt collection activities, including repossession. A creditor must file what’s called a “motion for relief from stay” if it wishes to continue its collection activities. Even then, the court must grant the motion before the creditor may proceed. Accordingly, if your vehicle lender wishes to repossess your car, it will have to wait.
If your cosigner filed a Chapter 7 bankruptcy, he will have the option to reaffirm the debt and thereby help avoid repossession. Chapter 7 bankruptcy is sometimes called liquidation bankruptcy or fresh start bankruptcy, because filers obtain relief from personal liability for certain loans after the bankruptcy trustee sells off their nonexempt assets and pays their creditors. Chapter 7 debtors may reaffirm debts, such as car loans. Reaffirmation involves waiving the right to discharge the debt in exchange for the ability to keep collateral.
If the cosigner filed a Chapter 13, a reaffirmation agreement isn't required to avoid repossession. A Chapter 13 allows filers to keep assets, such as vehicles, if they stay current on the underlying loan payments and Chapter 13 payments. The Chapter 13 payments are based on how much past due debt the debtor had at the time he filed bankruptcy. Those past due balances are paid over a term of 36 or 60 months.
If the cosigner refuses to reaffirm the debt or file a Chapter 13 bankruptcy, the debt will not disappear; instead, you will be solely responsible for it. If you only got a cosigner in the first place because the lender forced you to, then being solely responsible for the loan may not bother you. If you have not fallen behind on the loan, you should not have to worry about the lender repossessing the vehicle. If, on the other hand, the cosigner was helping you pay the debt and you cannot maintain it alone, you, unfortunately, will be the sole target of the lender's collection efforts.