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Can I File Bankruptcy and Not Impact My Private Student Loan Cosigners? – Matthew

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Question:

Dear Steve,

Currently, I am neck-deep in private student loan debt due to some poor choices made when I was in higher education. Unfortunately, the sum of my monthly payments covers about three-quarters of my monthly paycheck, and of course, I have other bills to pay. Naturally, my parents were used as cosigners on these loans.

I’m aware of the potential options available to me in defaulting or filing for bankruptcy, and at the point, bankruptcy would be the least harmful to myself and my family…. I think.

The problem is my significant other is in the process of purchasing a house, and the home loan will be under only her name. We are, however, planning to have my name on the deed.

Would filing for bankruptcy put this house under risk?

Thanks,
Matthew

Answer:

Dear Matthew,

Keep in mind that anything you do about your private loans is going to impact your cosigners. If you default they will go after your parents for the amount due on the loan. If you were to get your student loans discharged in bankruptcy it will not terminate your parents obligation for the loans as cosigners.

Regarding the house, depending on the state where you live, any equity in the home could complicate any future bankruptcy you might file. If there was enough equity to go after then it could even put the house at risk.

Until you come up with a strategy to deal with your private student loans, I’d suggest you consider leaving your name off the house for now. It can always be added later.


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