Almost everyone has been asked for financial assistance from a friend or a family member. Sometimes the friend or family member wants you to co-sign a debt for them.
Many people mistakenly believe that by being designated as the co-borrower, or secondary borrower, that the lender will only be able to collect against the primary borrower in the case of default. When a default arises, the co-signer can be surprised and greatly disappointed to find that is not the case.
Legally, the co-borrower, or secondary borrower, is just as responsible for the repayment of the debt as is the primary borrower. This is a concept called “joint and several liabilities.” It means that if the debt is not paid, the lender can choose to try to collect against either borrowers or just one borrower.
For example, Jane co-signs for her grandson, Scott’s, car loan. Scott is listed as the primary borrower and Jane is listed as the co-borrower. If Scott does not keep up with the payment, the vehicle will be repossessed. After repossession, the lender will sell the vehicle at auction. If Scott (and Jane) owes $20,000.00 on the car and it only sells at auction for $12,000.00, the lender can come after Scott and/or Jane for the $8,000.00 that is still owed. The lender could choose to sue both Jane and Scott for $8,000.00 each and see who they collect from first or they could just sue Jane for the $8,000.00 and they may leave Scott alone, or vice versa.
As you can see, agreeing to co-sign is a serious decision. You are not only allowing your good credit to help someone else get a loan, but you are also making yourself fully responsible for repaying the loan. If you are unable to repay that loan in the case of the primary borrower defaulting, you should probably politely decline to co-sign.
As the saying goes, no good deed goes unpunished. If you have already tried to help someone out by co-signing only to have the primary borrower default on the payment, give Steidl & Steinberg a call. We can take a look at your situation and see if bankruptcy would be a good option for you to get out from under your “good deed” debt.