My Father Co-Signed for My Car and I’m Going Bankrupt. – Deborah


“Dear Steve,

I’m single and deep in debt ($25,000), I just lost my job and at this point I’m living off my partime job I had before lay off and 6 weeks severance pay (UI benefits have not kicked it as of yet). I have about $6,000.00 in 401K. I have a mortgage and a car note (new 5 mos) which I can pay for another 3-4 months on my own + gas,lights, etc, but I can’t pay the $25,000.00 debt which is Credit cards, a secured loan using an old car as collateral. Things right now are ok, except for the credit cards and loan

I’m looking for a full time job and things are looking good, but may have to take cut in pay.

I was going to file BK before loosing my job and now that I’m not working can I still file Bankruptcy which allows me to keep my house and car (dad co-signed fo car) and can I just do a BK on the $25,000.00 debt? My parents will help me keep house and car if needed, but nothing else will this cause a problem with me filing a BK?

Thanks for listening how you can give me some direction


Dear Deborah,

You should feel perfectly comfortable contacting a local bankruptcy attorney and scheduling a free bankruptcy consultation to go in and ask all the questions you have. That appointment will accomplish two things, help you to get specific answers and let you see if you like the attorney.

To keep the car and house you are probably going to have to do a chapter 13 bankruptcy. That’s the payment plan variety where your repayment to your unsecured creditors will be based on what you can afford. You will most likely be able to keep your car and home and continue to make the regular payments on that.

All of that sounds very routine and simple to accomplish. The sticky point here is that the car lender may reflect on your credit report that the loan was included in a bankruptcy. In bankruptcy, all creditors must be included, but some, like the mortgage and car lenders will let you keep those items as long as you continue to make payments on them.

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Since this is a co-signed loan, any comment by the car lender will most likely appear on your father’s credit report as well. You two are tied to the hip on this loan.

If your father wanted to avoid that then he could refinance the car in his name and let you drive it. It’s a thought. Companies like eloan.com will refinance used cars.

But before you do anything like that, please find your bankruptcy attorney, meet with them, and discuss this strategy so it does not create any complications for you.

Oh yes, whatever you do, don’t touch the 401(k) money. It is there for your future savings, not to be spent now. As long as the money remains in your 401(k) now it is protected from your creditors and they can’t touch it. Take it out and you will lose a big chunk to taxes, penalties, and potentially your creditors.

Thanks for the question.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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