Pitfalls of Being a Co-Signer

It is nearly impossible to keep a job without some form of transportation. Since many Americans cannot afford to purchase a car outright, they must resort to financing. If they have a bad or non-existing credit history, a co-signer is sometimes needed. This is often a parent, other family member, or even a friend. In a perfect world, the primary borrower would timely make all of the payments. Unfortunately, this is not always the case.

Whether it is due to a general lack of funds, loss of job, or some other outside factor, once a person falls behind on a co-signed debt, the creditor usually has the right to collect from either party. When the delinquent loan is for a vehicle, the creditor will usually repossess the vehicle, sell it at auction, then sue the borrower and the co-signer for the remainder which is referred to as a deficiency balance.

If the primary borrower is employed, the creditor can seek to garnish his or her wages. However, I frequently see people who helped a family member or friend acquire a vehicle who are held responsible for the entirety of the debt. The person must then either pay the debt willingly, be forced to pay it through a wage garnishment, or seek debt relief.

The good news is, there is help for both the primary borrower and the co-signer. While they can only file a joint case if they are married, both can seek debt relief through either a Chapter 7 bankruptcy or a Chapter 13 personal reorganization. Regardless of which option they choose, the creditor must immediately stop any attempt to collect on the debt once the case is filed.

It is very difficult to say no to a family member when they are in need of help. A general rule of thumb is to not co-sign for a debt unless you can pay for it on your own should the primary borrower default. If you find yourself in a situation where you are responsible for a debt you cannot pay, you do have options. The best option is to contact one of our experienced attorneys nearest you for a free, confidential consultation.