Can the Obligation of a Co-signer Be Discharged?

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.

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.

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.

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.