If they file a regular Chapter 7
case, then you will not receive any protection from the bankruptcy courts
as a consequence of their filing bankruptcy. In this instance, the credit union is free to come after you as a co-signer on the note. It will most likely have a negative impact on your credit rating due to your son and daughter-in-law's default on the note.
Since a car loan is a secured debt, the credit union has the right to either get their payments -or- seek to have the car repossessed and returned to them. They will probably retain local bankruptcy counsel to help them do this while your son and daughter-in-law are in an active bankruptcy filing.
If they file a Chapter 13
case for some reason, normally there is a special co-signer protection which may preclude the credit union from coming after you during the term of the bankruptcy proceeding itself.
If they are not going to be making the payments (and assuming you don't want to take the payments over yourself [along with ownership of the car!], the best thing to do might be to sell the car and pay off the loan -- or alternatively, voluntarily give the vehicle back to the credit union and work out some sort of agreement with respect to any balance due.
Finally, depending on what state you are, your fixed income (assuming its something like social security or a pension
) MAY be considered exempt meaning that the credit union may not be able to touch it.