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What legal rights does a co-signer of a Private Student Loan have if Borrower files for discharge under Bankruptcy Chapter 7?

Los Angeles, CA |

Co-signed a student loan in 1999. Recently Borrower got into financial problems and is trying to be released from all his debts via Chapter 7, including the student loan via Chapter 7 Undue Hardship. Very little chance that Borrower will succeed if Sallie Mae objects, but concerned that Sallie Mae may not object and he succeeds because of no objections. It would be much cheaper for Sallie Mae to collect money from a responsible co-signer rather that then a person who declared bankruptcy.

Is there legal action that a co-signer can take to prevent Borrower from getting released from the student loan. Will the Court even notify the co-signer about the bankruptcy? Would prefer that the Borrower continue to be obligated to re-pay loan.

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Attorney answers 3

Best Answer
Posted

You should be notified if the borrower files bankruptcy. Co-signors are required to be listed on Schedule H of the Bankruptcy Petition.

I would very seriously doubt that the Sallie Mae will fail to object or answer and action to allow the release of the borrower's student loans. It's not really very discretionary. Sallie Mae has successfully objected to the discharge of loans by quadriplegics. I am not kidding.

If the borrower is able to tell his sad story from a standing or sitting position, I doubt that he will succeed. A closer examination of the facts is required, of course. However, I am not exaggerating.

Some courts allow a "partial discharge" of student loans in the case of particularly sympathetic cases that simply don't meet the legal requirements of "undue hardship." This is rare and happens only in a few District Courts in especially hard cases where it just doesn't seem fair to leave a virtuous debtor on the hook for a huge debt thats impossible to pay. So the court leaves them on the hook for only a portion of a huge debt that's impossible to pay.

There is the possibility that Congress may enact some amount of dischargeability for "private" student loans in the future. Sallie Mae loans are not private. Good luck.

Don't forget to click on the "Best Answer" button, if you appreciate this wit and wisdom. This answer is not intended to create an attorney-client relationship and may not be relied upon as legal advice. A careful examination of the facts is necessary before a legal answer may be relied on. You should consult your own attorney before taking or refraining from any legal action.

Asker

Posted

Thanks foryou rapid answer. It is much appreciated. Did you mean to write that Sallie Mae loans are "not" private school loans. I thought that theyonly offered "private" school loans? If not "private" what are they?

Charles Ross Smith III

Charles Ross Smith III

Posted

Right. My error. Sallie Mae loans are NOT private loans. They are government loans.

Posted

As a co-signer, you should be notified of the bankruptcy. You can object to the debtor seeking hardship discharge, but it has to be based on the debtor's circumstances, NOT your inconvenience. You agreed to make good on the loan, so you can ultimately be held responsible for payment, regardless of your preference.

Asker

Posted

Thanks. My objection would be based on debtor's circumstances. Know that as a co-signer would still be responsible for the loan, but don't want the debtor to be free of receiving bad credit reports if I had to take over the payments for awhile and was late on payments. Sallie Mae was quick to take his name off the loan and leave me as the only one to collect from once he told them that he was filing for bankruptcy. They told me that they would put his name back on the loan with mine only after they were sure that his Chapter 7 was over and was not discharged from the loan. Meanwhile I have to make the loan payments or suffer a bad credit report or worse and he feels no pain.

Posted

As a co-signer the creditor can come after you for the entire amount if the borrower defaults. If the borrower is in default, the lender can come after you anytime (regardless of whether the borrower files bankruptcy). That is why I implore eveyone, "please, please, do not cosign a student loan unless you can afford to pay it back yourself." That said, Mr. Smith III is right on the mark. A debtor's chance of getting a hardship discharge in California (absent some extreme physical or mental impairment) is slim to none.

Also, as previously mentioned, you should have been listed on the Debtor's Schedule H, which normally would result in you receiving some notice from the bankruptcy court. If you'd like, you can file a Request for Special Notice with the court which will entitled you to receive notice of most everything. You can download this form from the court at http://www.cacb.uscourts.gov/forms/request-special-notice.

Good luck,

Rob Taylor
www.affordableattorneysgroup.com