The purpose of a co-signer is to obtain the loan. If you fail to pay the loan then the lender can go after the co-signer for the payments. Since it seems that the lender has not done that and is forgiving (canceling) the debt, the co-signer is no longer involved at all. They are canceling *your* debt, not the co-signers debt.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
