Co-signing or guaranteeing a debt

Numerous bankruptcies have been caused by parties, particularly parents, co-signing or guaranteeing debt obligations of their children.

Susan owned a house worth approximately $75,000.00 with a mortgage lien of $40,000.00. Thus, she had $35,000.00 worth of equity in her home. Beyond her $550.00 a month mortgage payment, she had almost no debts, working as a nurse and living comfortably.

But her son, who had no credit, needed a car for a job that he had just acquired. He asked Susan to co-sign an $18,000.00 car loan. Susan agreed to co-sign the loan and, of course, never expected that her son would miss any of the monthly payments.

Unfortunately, the son’s job did not work out for him, and he quit after six months. Shortly thereafter, he relocated to California and Susan did not hear from him for several months. Then, Susan began receiving telephone calls and letters from the car’s loan company demanding the monthly payment. The finance company then repossessed and sold the car. The car was sold at an auction for significantly less than its value, and it left a deficiency on the loan in excess of $10,000.00.

The finance company then sued Susan for this deficiency. Susan didn’t have the $10,000.00, and the payment plan offered by the finance company was too high for her, considering the debt she already had.

If only she could consolidate all of her debt at no interest! Well, she can, in a Chapter 13 repayment plan, In fact, because of her circumstances, she was able to reduce the total debt from $35,000 ($10,000 for the car deficiency and $25,000 in charge cards) to $20,000, saving her a lot of money. Susan was able to keep her house and everything else she owns.