Co-signers and Bankruptcy in Canada

Category: Personal Bankruptcy

What happens to a co-signer if you file bankruptcy in Canada?

Here’s a common example:

I get my parents, or a friend or relative to co-sign when I get a car loan (because my credit isn’t good enough to qualify on my own).  Then I lose my job and the car gets repossessed.  If I can’t pay, the lender will obviously go after the co-signer for whatever is left owing; that’s why they want a co-signer in the first place.

If you declare bankruptcy in Canada, the same thing happens.  The creditor has the ability to pursue your co-signer to collect the balance owing on the loan.

So, before you declare bankruptcy, be sure to review all of your debts, and if anyone has co-signed for you, it would be wise to talk to them first.  You don’t want them to be surprised when they get a call from the bank saying that you didn’t pay, and now the entire loan is due and payable immediately!

They may decide to call the bank and switch the loan into their name, so they can keep making the payments themselves.  From your co-signer’s point of view, it’s generally best to be proactive and talk to the lender as soon as possible, so that payment arrangements can be made before the loan goes into default.