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The act of co-signing a loan is easy. It can also feel very rewarding since you’re often helping a family member or friend who wants to buy a new car or maybe even a house. Parents often co-sign loans for their children and feel obligated to help them out. Because personal feelings can get involved, potential co-signors often don’t stop to think about the consequences.
If the bank is asking for a co-signer, it is because the bank has doubts about the borrower’s ability to pay. In fact, there is so much doubt, that the bank would otherwise refuse the loan if there is no co-signer to guarantee payment.
If the borrower goes bankrupt or files a Consumer Proposal with a Licensed Insolvency Trustee, the co-signer will still be held responsible for the full amount of the loan owing. This includes loans co-signed for a former spouse. Many people don’t realize that the act of getting divorced does not eliminate your responsibility to pay the full amount to the bank if a default occurs at a future date even if it’s included in a separation agreement.
Ways to mitigate risk when co-signing a loan:
Co-signing a loan is risky. If the borrower defaults, the bank will look to you to pay back the loan. As a Licensed Insolvency Trustee, I often see people with good credit and very little other debt who find themselves having to file for bankruptcy due the fact that they have co-signed a loan. If you’ve co-signed a loan and are being asked to make good on your promise to pay but cannot, speak to a License Insolvency Trustee today about your options. Working together with you, we can help you choose which best route forward is best to your unique situation so you can get back on track and start working towards a strong financial future.
Philippe Larocque is a Licensed Insolvency Trustee in our Ottawa location. To learn more about how MNP can help, please contact our local office at 613.691.4270.
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*310-DEBT doesn’t operate in MB, NW ON and QC.
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