Student Loan Co-signor and Filing Bankruptcy

Texas Guaranteed Student Loan Corp. headquarte...

Texas Guaranteed Student Loan Corp. headquarters in La Frontera (Photo credit: Wikipedia)

Recently on a bankruptcy forum website, a blogger asked the question, “what will happen to the co-signor of a student loan when the lender learns you are filing bankruptcy?”

Different Types of Student Loans Generate Different Responses

There are basically two types of student loan programs you can enter into to borrow money for the purpose of attending schools of higher education: private and federal government programs. Each of these lending institutions for the two different programs of student loans have individual policies for the handling of their clients in almost any situation, including when the client files for bankruptcy protection.

Because of the bankruptcy automatic stay, both types of student loan providers must cease collection activities the moment you file for bankruptcy. Their response times and reactions to the bankruptcy news can be different. Here are some ways these differences might be felt by you and your co-signor, depending on the type of student loan program you have entered:

  • Some will notify the co-signor you have filed for bankruptcy protection, some will not;

  • Because of the automatic stay of bankruptcy, all student loan lending institutions should stop sending you or a co-signor payment statements during the time you are in bankruptcy;

  • All student loan lending institutions should stop your automatic withdrawal payments if you are on that type of pay back plan;

  • If you have an online account with a student loan institution, you and your co-signor may be denied access to your account information; and

  • If you go into default on your student loan by missing a payment, most lending institutions will likely go back on your co-signor for payments.

Your Responses Toward Student Loans When You file Bankruptcy

Here are some suggestions on how you might respond toward your student loans when you file for bankruptcy protection:

  • Be up front with your co-signor if you decide you need to file for bankruptcy protection. When people help you out financially, it is no fun for them to get surprises about your situation, especially in the mail.

  • Although payment reminders from your student loan lender will automatically cease, it is still your responsibility to keep up the payments even during a bankruptcy.

  • Remember, your automatic withdrawal payments for student loans will most likely cease. It is your responsibility to take care of any new payment plan. Because of the automatic stay of bankruptcy, your student loan provider cannot contact you. You must contact them to make arrangements to pay.

  • If you want to continue an online account, you must call your student loan provider to get permission to continue. Most will allow this type of communication because of the automatic stay. In that case, you must make other arrangements if you want to continue to pay your bill.

  • To prevent any student loan provider from coming back on a co-signor after you file for bankruptcy, you must continue to make payments on the loan on time. That may require you to contact your student loan provider.

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