Legal Question in Bankruptcy in New York

Re: bankruptcy and co signers

YOU ASK A GOOD QUESTION.

MY RESPONSES ARE IN CAPITAL LETTERS; I DON'T MEAN TO SHOUT, BUT IT MAKES A CONVENIENT WAY TO DISTINGUISH BETWEEN QUESTION AND ANSWER.

My fiance cosigned a car loan for his daughter. Recently she filed bankrupcy and though she's still making payments on the car, she said the bank owns it now.

NOT QUITE: THE TRUSTEE OF THE BANKRUPTCY COURT OVERSEES THE PAYMENTS AND OWNERSHIP IN BANKRUPTCY. THE BANK MUST FOLLOW THE TIMEFRAME AND THE ORDER OF THE BANKRUPTCY COURT. THE BANK, HOWEVER, HAS A POWERFUL CLAIM ON THE CAR BECAUSE THE MONEY LOANED WAS USED TO PURCHASE THE CAR. THIS IS CALLED A "PURCHASE MONEY SECURITY." PURCHASE MONEY SECURITY HOLDERS ARE AMONG THE FIRST IN LINE AT THE BANKRUPTCY COURT'S DIVIDING UP THE BANKRUPTCY ESTATE.

She's also purchased yet another car, and now thinks the bank is going to take her first car. My question is, will co-signing for the first car, even though its in bankrupcy, come back to haunt my fiance? Will the bank be asking him to pay for her mistake?

WHEN ANYONE COSIGNS A LOAN, THE COSIGNOR TAKES ON FULL RESPONSIBILITY FOR THE LOAN IF THE PRIMARY SIGNOR DEFAULTS. IF YOUR FIANCE'S DAUGHER CONTINUES TO PAY ON THE FIRST CAR LOAN, THE BANK IS NOT LIKELY TO REPOSSESS THE CAR. IF SHE STOPS PAYING, THE BANK MAY REPOSSESS AND MAY COME AFTER YOUR FIANCE FOR THEIR COSTS (COURT, ATTORNEY FEES, TOWING, STORAGE, ...) IN THE REPO (SINCE THEY CANNOT COME AFTER HIS DAUGHTER WITHOUT VIOLATING THE BANKRUPTCY COURT ORDER), PLUS ANY SHORTAGE ON THE LOAN THAT THEY RECOVER WHEN THEY SELL THE CAR (USUALLY AT AUCTION).

IF YOU WISH TO CONSULT FURTHER REGARDING YOUR MATTER, PLEASE GET IN TOUCH WITH MY OFFICE.

THIS RESPONSE IS GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS, NOR SHOULD IT BE CONSTRUED AS, LEGAL ADVICE. FOR ADVICE CONCERNING YOUR PARTICULAR SITUATION, YOU SHOULD CONSULT YOUR ATTORNEY.

Re: bankruptcy and co signers

Yes, the co-signor will remain liable for the car loan. The daughter's BK may or may not discharge HER liablity on the loan, but if she stops making payments, the bank will repo the car and sell it at auction. If there is a deficiency balance, the bank will look to your fiance (and/or daughter) to satisfy the debt.