A co-signer is a person that agrees to be responsible for the payment of a debt, such as a car loan, mortgage or a student loan, with another borrower. A co-signer, therefore, is equally responsible for repaying the debt just as if he or she borrowed the money without another borrower. This means that if the other borrower defaults on the loan, the co-signer remains obligated to pay the debt even though the borrower is in default.
A borrower that needs a co-signer does not qualify for the loan -- either because the borrower has a negative credit history or no credit history -- without a credit-worthy person that agrees to share responsibility for the debt. A co-signer, however, does not necessarily have any rights to the property. For instance, a co-signer may only be listed as a debtor on the loan but not be listed as a titleholder to the property. In addition, the debt will show up on the co-signer’s credit report and any adverse actions, such as a late payment, will be reported on the co-signer’s credit report.
Voluntary Discharge by Creditor
A co-signer is essentially a guarantor on a loan. Consequently, it is very unlikely that a creditor would agree to remove a co-signer from a loan. However, the lender may agree to remove the name of the co-signer if the loan is refinanced. The other debtor would need to meet lending requirements to receive a new loan in his or her name or receive a new loan with another creditworthy co-signer.
Discharge in Bankruptcy
A co-signer may be able to discharge the debt in bankruptcy. Bankruptcy will eliminate the debt of the co-signer, but it does not eliminate the other borrower’s obligation to pay the debt. Conversely, if the other borrower files for bankruptcy, the co-signer, even if he or she does not have the title to the property, will remain legally responsible for the debt.
Student Loan Discharge
A co-signer on a student loan is equally responsible for repaying the loan. A co-signer on a student loan can be discharged or released from its obligation in certain circumstances. Some private student loan lenders, for instance, allow the release of the co-signer after the student borrower has completed school, has made a certain number of payments, remains current on the loan and can meet the underwriting requirements of the lender. Once released, the co-signer is no longer responsible for the debt.