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Auto Loan with a co-signer CH7

New Visitor

Auto Loan with a co-signer CH7

Hello all, i currently have a 45k auto loan with my local credit union, which my brother co-signed for me. Unfortunately i have to file for CH 7 bankruptcy. I am current on the loan and have never missed a payment, my question is if i reaffirm this loan how would this affect my cosigner? Would it show up on his credit as anything bad since hes technically on this loan? I am going to do everything i can to protect my cosigner and would like to know what.. if anything will show up on his credit regarding this loan being reaffirmed. I'm afraid if i don't reaffirm this loan and just keep making payments then my credit union will repossess this vehicle because of the bankruptcy clause on my contract agreement. Please help.. thank you
Message 1 of 6
Established Contributor

Re: Auto Loan with a co-signer CH7

You should reaffirm this loan because FCU/CU have different rules and regulations and what they do have and exercise it is cross collateralization.


Cross Collateralization Agreements in Bankruptcy

This big issue that this creates in bankruptcy is how we classify a particular debt.  Whether a debt is classified as secured (i.e. there is collateral backing the loan) or unsecured (i.e. credit cards, medical bills, etc.) makes a huge difference on whether you have to pay the debt after the bankruptcy filing.  For example, almost all credit cards are unsecured, and because of this pretty much across the board credit card debt is discharged or eliminated through a bankruptcy filing. 

Well, if there is a cross collateralization agreement associated with your credit card, the bank will likely allege that what looks like a typical unsecured credit card is actually a secured debt that is backed by your checking account and possibly a car loan that you have with the credit union.  Secured debts generally have to be paid, even after bankruptcy.  For instance, if you don’t pay your car payment (a secured debt) after bankruptcy, they can take your car.  So, if based upon the cross collateralization agreement your credit card is a secured debt, you would be required to pay that debt or risk losing the collateral associated with the credit card (usually the money in your credit union checking account). 

Ways of Working Around the Cross Collateralization Agreement in Bankruptcy

During the bankruptcy process this can become a problem because even after the bankruptcy court issues a discharge of your debt the credit union may claim that because of the cross collateralization clause that even they credit card debt you had with them wasn’t discharged in the bankruptcy.  One way that I have dealt with this in prior cases is to negotiate with the credit union to release any alleged security they may be claiming on the credit card. 

If you have a car loan with your credit union you will be required to submit a reaffirmation agreement.  The bankruptcy court typically won’t approve the reaffirmation agreement unless the credit union agrees to give up something, whether that is a lower interest rate, lower principal balance, or, if they are willing to void the cross collateralization agreement and thus allowing you to discharge the credit card debt with the remaining unsecured debt.

So, what do you do if you believe you have a cross collateralization issue?  First, you should meet with a bankruptcy attorney and have an evaluation done as to whether a cross collateralization agreement is actually in place.  Federal law has very specific requirements for there to be a valid cross collateralization agreement.  If such an agreement is in place, it does not mean you can’t file for bankruptcy, it just means that there is going to be some extra negotiating with your creditors by your bankruptcy attorney.


Hope this helps
" EX 683 EQ 691 TU 687 MMS 689"
Message 2 of 6
Frequent Contributor

Re: Auto Loan with a co-signer CH7

If you are current on payments, and continue to make payments on time they won't repo your car. They DON'T want it back, it's cheaper for them to have you keep it. Once it's paid off they'll send you the title even if it's not reaffirmed. The BK reports on your credit, it shouldn't report on the co-signer since they never filed it should report on their credit as current and payments being made. When the credit union enters in the BK reporting it's person/account specific, not just account specific.

Ch7 BK filed 7/5/16, DC 10/12/16
Message 3 of 6
New Member

Re: Auto Loan with a co-signer CH7

I plan to keep the car and keep paying on-time guaranteed. I was planning on reaffirming the loan but i wasn't sure if doing so would show the loan as " something bad" on my cosigners credit reports ie. "Included in bankruptcy" or something.

So there's a possibility my credit union can deny my reaffirming? If so, why and what would happen next?? Thank you both for your help
Message 4 of 6
Established Contributor

Re: Auto Loan with a co-signer CH7

Highly doubt that they wouldn't accept the affirmation as the previous poster stated "They don't want the car" and sell it at auction, they make money by you keeping it.

" EX 683 EQ 691 TU 687 MMS 689"
Message 5 of 6

Re: Auto Loan with a co-signer CH7

I wouldn't guarantee that the credit union will work with you.. I'm about 15k upside down in an auto loan with first tech.. my lawyer says they're one of the hardest to deal with. I wasn't going to reaffirm a bad Loan so we offered 12k.. they said no.. when I got the lift stay papers they had auction values and retail..i offered above their retail numbers.. No so we are just going to surrender it back to them..
Message 6 of 6