Many people hesitate to file for bankruptcy for fear of harming their co-signer’s credit. Contrary to popular belief, it is possible to file for bankruptcy while keeping your co-signer’s credit fully intact, although this wasn’t always the case. Here is what you need to know if you have a co-signer and are considering filing for bankruptcy:
How were co-signers affected in the past?
As few as 10-15 years ago, a co-signer’s credit record would automatically reflect being “included in bankruptcy” as soon as the primary borrower filed. This was due in part to Metro, the standard credit reporting system that provided for reporting by accounts. This means that if one individual on an account files, both parties will be in dark waters, regardless of whether the account is current. This would show up on the credit report of everyone liable on the given account.
How has co-signer protection increased?
In the late ‘90s, credit bureaus introduced a new credit reporting system: Metro 2. The new and improved method reported credit information by person, rather than by account, which is obviously the more logical option. This allowed a creditor to note which party on the account filed for bankruptcy, and which party was in the clear. As a result, the bankruptcy would not be reflected on the credit report of the co-signer. However, the co-signer’s credit record would include the payment status on the account.
Co-signers’ credit records now rarely reveal a bankruptcy related to an account on which somebody else filed a bankruptcy, but it can still happen. Some creditors may still be using the old Metro reporting system, in which case, a co-signer’s credit report could be negatively affected.
How can I protect my co-signer’s credit?
Although it’s highly unlikely that your bankruptcy would be present on your co-signer’s credit report, there is only one way to make sure his or her credit isn’t damaged: Have your co-signer check his or her record carefully and often. If your bankruptcy is referenced, a quick and easy complaint can have it removed.
If you’re wondering about the ways filing for bankruptcy might affect you and others, contact DeLuca & Associates at (702) 381-6528 to schedule a free consultation with an experienced bankruptcy attorney in Las Vegas.