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What Happens to a Borrowers Credit if their Cosigner Dies

A lot of people obtain the help of cosigners in order to gain access to credit accounts due to the fact that they don’t have adequate credit, or sometimes don’t have credit at all. However, not many take into consideration the possibility that their co-signer may pass away before the loan is completely paid. Although no one wants to think about this possibility, it is better to be aware of the consequences rather than having to deal with it unprepared. Here is the lowdown of what will occur if your cosigner passes away prematurely.

How Does a Cosigner Work?

A cosigner is someone who agrees that if you are unable to pay your bills they will do it for you. For example, if you have a cosigner sign onto your rental agreement then they will be responsible for the payment of your rent if you are unable to pay on time. If you are unable to pay your bills on time or don’t pay them at all then your cosigner’s credit score will be damaged along with yours. Due to the fact that your cosigner will be just as responsible for your bills as you are, if something bad were to occur to him or her, such as if they pass away or if they declare bankruptcy then this will have an impact on your credit. However, the effect it will have will depend on what type of debt your cosigner signed on to.

What Occurs With Your Student Loans If your Cosigner Dies?

If the cosigner on your private student loans passes away then your loans may go into an auto-default status. This is due to the fact that the entire amount will be due if they pass away, and if you can’t afford to pay the entire amount right away then it will end up in default. Defaulting on your student loans means that you are unable to pay back the loan according to the terms written in your promissory note. Unfortunately, because of this you may be unable to be eligible to create a payment plan to repay the loan or from taking on more student debt. In most cases, when you default on your student loans they will be turned in to a collections agency.

What Will Happen To Your Other Types of Debts If your Cosigner Dies

It is likely that if your cosigner passes away then you will still be liable to pay the debt, however you won’t necessarily go automatically into default like you would with student loan debt. If you do not repay the debt then your cosigner’s estate will often become liable. Lenders will often get into contact with the deceased cosigner’s family who is able to access their estate in order to fully recover the payments. However, keep in mind that these lenders will not be able to force family members to pay the debts unless it is the spouse of the deceased cosigner and they lived in a state that has community property regulations.

What You Can Do As A Precautionary Method

Unfortunately, if something bad happens to your cosigner there really isn’t much you can do about it. However, if you have a cosigner release form then this can be of great help. This is a type of document that allows for your cosigner to be dropped off of your loan after a specific number of payments that are turned in on time and after your credit is checked in order to ensure that you are able to pay your loan off in full on your own. If you are able to obtain this option then you should exercise it as soon as you are able to in order to reduce the risk of your loan ending up in auto-default due to something happening to your cosigner.

How To Avoid Issues With Your Cosigner

If it is at all possible it’s best to avoid cosigners all together. Although cosigner and consignee relationships are usually entered into with good intentions, they can end up causing problems in personal relationships if the borrower is unable to make the payments, or major problems can arise if the cosigner passes away. However, if it is absolutely necessary to use a cosigner because of the fact that you don’t have a solid credit history then get the cosigner to add you as an authorized user. This means that if something were to happen to them, you won’t be held accountable and they would still have total control over their account.

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