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Chapter 13 being filed by a co-signer!

TheeeGod 690 25 July 2, 2011 at 08:23 AM
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I was wondering if anyone here new the intricacies of loans and bankruptcy.

I have loans from Sallie Mae in a large amount, both federal and private. My parents co-signed these loans and, due to unrelated issues, my parents recently filed for a Chapter 13. I knew about this, but the fact that they co-signed for my loans escaped our minds.

Now, Sallie Mae is aware of this and has put a hold (i.e. they won't accept payments) on loans which were co-signed by someone who is now in bankruptcy status. Before, this I was paying my federal loans via income based repayment and my private loans were in internship/residency deferment.

Since I am the primary account holder with Sallie Mae and since I am NOT filing for bankruptcy, anyone have a clue of how does this affect my credit rating and/or how does this have a detrimental effect on me? Am I in trouble as far my credit or my future goes? Or will I be okay since I am not the one filing?

If anyone knows anything about this, please do tell.

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#2
Quote from TheeeGod View Post :
I was wondering if anyone here new the intricacies of loans and bankruptcy.

I have loans from Sallie Mae in a large amount, both federal and private. My parents co-signed these loans and, due to unrelated issues, my parents recently filed for a Chapter 13. I knew about this, but the fact that they co-signed for my loans escaped our minds.

Now, Sallie Mae is aware of this and has put a hold (i.e. they won't accept payments) on loans which were co-signed by someone who is now in bankruptcy status. Before, this I was paying my federal loans via income based repayment and my private loans were in internship/residency deferment.

Since I am the primary account holder with Sallie Mae and since I am NOT filing for bankruptcy, anyone have a clue of how does this affect my credit rating and/or how does this have a detrimental effect on me? Am I in trouble as far my credit or my future goes? Or will I be okay since I am not the one filing?

If anyone knows anything about this, please do tell.

Student loans can NOT be discharged in bankruptcy. Since your parents are co signers, and filed for bankruptcy, I believe there is a 6 month "protection period" where they can't go after the filer. Basically, their credit is "locked" for lack of a better description.

Once the bankruptcy is discharged (which is what they are waiting for), you will resume payments on the loans. They most likely won't go after your parents to repay, but of course if you then default, they still could. The delinquency of the loans for that 6 months will ultimately show on your record. Yes, even though you are willing and able to pay, but they won't let you. However the bankruptcy should NOT show on your credit report.

Bank your payments as if you are paying them, and pay the backlog once the accounts are released. Your best hope is to get them to write a letter of explanation stating what happened, and that you were willing and able to pay, and have them include that with the accounts.
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Last edited by MikeBear July 2, 2011 at 12:22 PM
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#3
Quote from MikeBear View Post :
Student loans can NOT be discharged in bankruptcy. Since your parents are co signers, and filed for bankruptcy, I believe there is a 6 month "protection period" where they can't go after the filer. Basically, their credit is "locked" for lack of a better description.

Once the bankruptcy is discharged (which is what they are waiting for), you will resume payments on the loans. They most likely won't go after your parents to repay, but of course if you then default, they still could. The delinquency of the loans for that 6 months will ultimately show on your record. Yes, even though you are willing and able to pay, but they won't let you. However the bankruptcy should NOT show on your credit report.

Bank your payments as if you are paying them, and pay the backlog once the accounts are released. Your best hope is to get them to write a letter of explanation stating what happened, and that you were willing and able to pay, and have them include that with the accounts.

Thanks for the reply. Is there anyway for me to avoid this 6 month freeze? My parents do not contribute to the payments in anyway. Its ridiculous that they won't accept money when someone is willing to pay them! Is there anything I can do at all so that this does not show up on my credit rating?
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Quote from TheeeGod View Post :
Thanks for the reply. Is there anyway for me to avoid this 6 month freeze? My parents do not contribute to the payments in anyway. Its ridiculous that they won't accept money when someone is willing to pay them! Is there anything I can do at all so that this does not show up on my credit rating?

I don't believe there is anything you can do. This is all according to bankruptcy law. The account holders basically are forced to do this per bankruptcy protection rules. If they don't they are liable at court.

There is one hope possibly. Contact the account holders, and ask them if you personally can REAFFIRM the debts (based on you saying you have always been the payor, and if your present income can support it), and resume payment.
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Quote from MikeBear View Post :
I don't believe there is anything you can do. This is all according to bankruptcy law. The account holders basically are forced to do this per bankruptcy protection rules. If they don't they are liable at court.

There is one hope possibly. Contact the account holders, and ask them if you personally can REAFFIRM the debts (based on you saying you have always been the payor, and if your present income can support it), and resume payment.
By account holders, I suppose you mean Sallie Mae? And by "reaffirming" - it basically means to take off the co-signer from the account? Thanks again for your help.
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Quote from TheeeGod View Post :
By account holders, I suppose you mean Sallie Mae? And by "reaffirming" - it basically means to take off the co-signer from the account? Thanks again for your help.

Yes, Sallie Mae. As for reaffirmation, it's a little odd in your situation, because it's the co-signers that are filing bankruptcy, and not the primary account person (YOU). Also, it's strange because a student loan can't be discharged in bankruptcy anyway. It basically consists of you promising to repay all the debt even if it would have been discharged in the bankruptcy. Since it can't be, I'm unsure what if anything they can do. It doesn't mean releasing the co-signers from the loan

IF however you can state and prove you have enough income to more than repay the loans, they may release the co-signer from the loans. Hey, nothing ventured, nothing gained. Stay in contact with them, and see what they are legally able to do for you.
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#7
Have you tried contacting Sallie Mae yet?
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#8
Quote from MikeBear View Post :
Student loans can NOT be discharged in bankruptcy. Since your parents are co signers, and filed for bankruptcy, I believe there is a 6 month "protection period" where they can't go after the filer. Basically, their credit is "locked" for lack of a better description.

Once the bankruptcy is discharged (which is what they are waiting for), you will resume payments on the loans. They most likely won't go after your parents to repay, but of course if you then default, they still could. The delinquency of the loans for that 6 months will ultimately show on your record. Yes, even though you are willing and able to pay, but they won't let you. However the bankruptcy should NOT show on your credit report.

Bank your payments as if you are paying them, and pay the backlog once the accounts are released. Your best hope is to get them to write a letter of explanation stating what happened, and that you were willing and able to pay, and have them include that with the accounts.
Am I reading right? After the six month period is up, he OP will have a 120-day late on their CR even if they start paying as soon as possible? If that in fact the case, OP you need to do everything you can to avoid this. You may want to ask on some of the other Credit Boards
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Quote from Tusin View Post :
Am I reading right? After the six month period is up, he OP will have a 120-day late on their CR even if they start paying as soon as possible? If that in fact the case, OP you need to do everything you can to avoid this. You may want to ask on some of the other Credit Boards

The dangers of co-signing a loan are more than just the obvious of getting stuck paying for a deadbeat. It's unfortunate that this persons parents filed bankruptcy, before asking a lawyer how the fall-out of doing that would affect their child's credit.

Co-signing is very SERIOUS business for both, and never to be taken lightly. About the only thing left, is for them to get that statement placed with their credit file to make sure any future creditors understand 100% it wasn't them that filed bankruptcy.
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#10
Quote from MikeBear View Post :
Student loans can NOT be discharged in bankruptcy. Since your parents are co signers, and filed for bankruptcy, I believe there is a 6 month "protection period" where they can't go after the filer. Basically, their credit is "locked" for lack of a better description.

Once the bankruptcy is discharged (which is what they are waiting for), you will resume payments on the loans. They most likely won't go after your parents to repay, but of course if you then default, they still could. The delinquency of the loans for that 6 months will ultimately show on your record. Yes, even though you are willing and able to pay, but they won't let you. However the bankruptcy should NOT show on your credit report.

Bank your payments as if you are paying them, and pay the backlog once the accounts are released. Your best hope is to get them to write a letter of explanation stating what happened, and that you were willing and able to pay, and have them include that with the accounts.
Quote from MikeBear View Post :
The dangers of co-signing a loan are more than just the obvious of getting stuck paying for a deadbeat. It's unfortunate that this persons parents filed bankruptcy, before asking a lawyer how the fall-out of doing that would affect their child's credit.

Co-signing is very SERIOUS business for both, and never to be taken lightly. About the only thing left, is for them to get that statement placed with their credit file to make sure any future creditors understand 100% it wasn't them that filed bankruptcy.
I hear ya. You probably know as well as I do, that a statement on your credit report only matters so much (a Credit Union may take solace in it). Not that I agree with it, but it is always the credit score that gets looked at first. And if the OP has good credit/no baddies, I would venture expect a 75+ point drop Frown

I would start writing letters to Sallie Mae, ask for some Good Will etc....
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#11
Statements are useless. When the courts said they had to be made available to the public (adding a statement) they probably had good intentions, but you can put anything in your statement and no one has to check the validity on it. I know when some stranger on the street tells me the restaurant I'm walking into is bad, I continue in. Now if the heath department is standing there telling me they wouldn't go in thats a different story. I don't blame the banks for not caring about statements in credit reports.

About what Mike said... I kind of feel like maybe you typed without thinking so I won't attack you. I just feel that statement about the parents not investigation properly was quite hurtful. Bankruptcy is a last resort. No one wants to do it and most people would do anything so they didn't have to go through with it. Do you think it would matter that it hurts there sons credit? Would they let the collectors take their home/car/furniture/whatever just so their son doesn't get a mark on their credit? I feel terrible for this guy, but would feel even worse trying to make the parents guilty for doing something that might've been way out of their control to start out with.
Your best advise is to head on over to creditboards and search through the student loan section and post your situation if someone hasnt already been in it. Everyone there is very helpful and will steer you in the right direction.
I do want to thank you though Mike. Your knowledge I can tell is good with these things and its great your here to help people out. I know I don't have this problem, but enjoy reading the replies and offering what I can, when I can. +REPS
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Last edited by KevinM822 July 11, 2011 at 04:11 PM
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