How to Remove a Cosigner From a Loan Included in Chapter 7 Bankruptcy
- 1). Fill out Form B240 and take it to your local court clerk. Chapter 7 of the U.S. Bankruptcy Code affords you the option to "reaffirm" any debt tied to a tangible item such as a car or house, which removes your option to discharge the debt--and, subsequently, your obligation to surrender the property tied to it. It's important that you file this paperwork prior to your discharge hearing.
- 2). List your property for sale. This process is not the same as the one that transpires if you allow the loan associated with your property to be discharged; in that case, your property will be forcibly repossessed and your cosigner will still be held liable for the debt.
- 3). Use the money you earn from the sale of the item toward the amount of the loan. Pay off the remainder of the loan as soon as possible to completely remove your cosigner's liability. Alternatively, your cosigner may pay off the loan and have you pay him back. This is not a perfect solution, but it is the only option afforded under the rules of Chapter 7 bankruptcy.
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