Tag: dangers of co-signing

Bankruptcy Law, Credit, Debt Relief

How a Bankruptcy Affects Co-Signers

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To obtain financing or approval for a loan, many consumers will resort to asking a loved one or family member to co-sign the loan for them. If the individual is not able to continue paying on the loan and defaults, the lender will be able to seek payment on the debt from the co-signer. However, what happens when the borrower who took out the loan files for bankruptcy? Does the co-signer receive relief from the obligation, as well?

What is a Co-signer?

A co-signer or guarantor is a person who takes on a financial obligation along with a borrower who often either has poor credit or limited credit. Deciding to sign a loan as a cosigner is more than just being a reference, a co-signer or guarantor is responsible for paying back the debt if the borrower is unable to do so.

A lender may see the borrower as a lending risk and will require him or her to find someone with a more solid financial history to co-sign the obligation. A co-signer may be needed for a personal loan, a student loan, an application to rent an apartment or other space, or a lease on a car, equipment or furniture. The responsibilities that accompany co-signing a loan are more than being a second signature on a lending application. By co-signing, that person is essentially taking on full responsibility for the loan in the event the original borrower defaults.

While a bankruptcy discharge may relieve the borrower, who is defaulting on the obligation, from responsibility or liability on the debt, the discharge does not always lift this burden from the co-signer on the debt. It often depends on the type of bankruptcy being filed as to what type of protections co-signers have regarding their debts.

Chapter 7 Bankruptcy

At the time of filing for Chapter 7 bankruptcy, the filer will receive protection from collection on his or her debts through the automatic stay. However, protection from the automatic stay does not also extend to any co-signers on debts. This lack of protection leaves the creditors completely free to pursue collection on the debt from the co-signers on the loan.  If the borrower wishes to maintain a good relationship with the co-signer, it may be wise for him or her to take certain steps to protect the co-signer. The person may choose to reaffirm the debt, especially if it involves a secured debt, such as a home loan, car loan or other secured credit account. By reaffirming the debt, the borrower is giving up the benefit of bankruptcy discharge on that specific debt. Many creditors will accept payment plans or partial payment on the debts in lieu of receiving nothing. If they discover the co-signer has substantial assets, they may be less likely to accept anything other than full payment, however, so this may not be a possibility.

Chapter 13 Bankruptcy

While a Chapter 7 bankruptcy case does not offer much protection for co-signers, a Chapter 13 bankruptcy case offers a little more. A Chapter 13 bankruptcy involves a three-to-five-year long repayment plan, which gives the borrower more time to pay off the co-signed debt. When a Chapter 13 case is filed, the automatic stay issued will protect both the borrower and co-signer from collection on any consumer debts, which is called the Chapter 13 co-debtor stay. The stay will be in effect unless the court lifts it upon request of a creditor or dismissal of the case. The co-debtor stay may also be lifted if the bankruptcy court converts the Chapter 13 case to a Chapter 7 bankruptcy case. Otherwise, a co-signer will receive considerably more protection under a Chapter 13 bankruptcy.

If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resource:

https://www.nolo.com/legal-encyclopedia/cosigner-liable-debt-file-bankruptcy.html

 

 

Bankruptcy Law, Debt Relief, Student Loans, Timothy Kingcade Posts

The Dangers of Co-Signing a Student Loan

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It has become common practice for parents of high school students looking to enter college in the fall to co-sign or take out private loans to help their children afford the costs associated with a higher education. Many times, the scholarships (if available to the student) have already been maximized, and the financial aid offered through federal loans simply is not enough to cover the complete costs of college.  However, according to a recent study taking on a private loan or co-signing on one to help a child go to college can seriously hurt the parent later when it comes to retirement.

Most private student loans require a co-signer since most high school students do not graduate with well-established credit. Parents will often jump to co-sign, not even thinking of the potential consequences.

“It’s portrayed to them as if they’re going to simply be a reference or endorser, when the truth is they‘ll be obligated to pay this loan if something happens and the primary borrower can’t pay,” said Seth Frotman, Student Loan Ombudsman at the Consumer Financial Protection Bureau (CFPB). “We now see more and more cosigners going into retirement facing unprecedented levels of student debt.”

According to a survey released by the website LendEDU, a site that specializes in student loan refinancing and private student loan borrowing, of the 500 parents who co-signed on their children’s loans, one-third of them did not fully understand the consequences of co-signing. Out of that number, 35 percent of them later said they regretted doing it. More than half of them said their credit scores took a hit after co-signing. More than one-third of them said that the lower credit scores later hurt their chances of qualifying for any financing in the future.

The parent’s credit can be negatively affected if the child later misses payments or fails to pay the loan on time. The survey also showed that more than one-third of the parents picked up the loan payments for their children.

However, what happens if the parent is unaware their child is keeping up on the loan payments? Many cosigners are not informed of the status of their co-signed loans until it is too late- many times to the point where interest had accumulated and fees had been assessed.  The survey also showed that more than half of the parents worried that their child’s student loan debt would jeopardize their retirement plans.

Every student is different, and while some may naturally be responsible, get a job straight out of college and make payments on the loans without any issue, many students fail to understand the responsibility of paying back these loans and are not so fortunate with their job prospects upon graduation.

One option available is a Tuition Installment Plan (TIP). Through a TIP program, the college may divide tuition into equal monthly payments with no interest added. If the parent or child can afford it, this avoids making one lump sum payment and avoids taking out the additional private loan to cover costs. However, look into whether the student’s specific college offers this option.

We have written previous blog postings on the dangers of co-signing a loan – which puts more than your name on the line.  If you have any questions on this topic, feel free to contact our firm.

There are ways to file for bankruptcy with student loan debt.  For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resources: https://www.nbcnews.com/business/consumer/cosigning-loan-your-credit-score-will-drop-you-ll-retire-n739366

 

Bankruptcy Law, Credit, Debt Relief, Student Loans, Timothy Kingcade Posts

What you Need To Know Before Cosigning a Loan

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Co-signing a loan puts more than your name on the line.  It is an all too common practice that gives you the opportunity to help another person, usually a loved one.  But it is important to remember that when you co-sign a loan, you essentially agree to repay the loan yourself. For example, you might co-sign for a car you never drive, a house you never live in or even a student loan for someone else’s college education.  Nearly 40 percent of cosigners found themselves paying some or all of a loan when the primary borrower they co-signed for was unable to make the payments, according to a survey conducted by creditcards.com.

Here are some important facts you should know before you co-sign a loan:

  • The effect it will have on your credit report. Once you cosign a loan, the debt appears on both of your credit reports.  This means, the loan can help both the primary borrower and the co-signer build a positive credit history if payments are made on time.  It can have the opposite effect if the primary borrower begins to miss payments.  These late or missing payments will land on your credit report and remain there for several years.  You can even end up paying late fees and have your wages garnished as a co-signer.  This may also limit your ability to borrow in the future.
  • You will be treated the same as the primary borrower. As a cosigner, the lender will expect you to pay the loan just as the primary borrower agreed to and will come after you for the payments.  Typically, lenders will target the person with the better potential to pay.
  • A warning about private student loans. These type loans are particularly difficult for the co-signer to escape.  Unlike federal student loans, private student lenders frequently require a cosigner since student borrowers are often young and without credit history or income.  Approximately 90% of borrowers who request cosigner release are rejected, according to a report from the Consumer Financial Protection Bureau (CFPB).

Here are some tips for managing your risk as a co-signer:

  • Know the borrower. And know them well.  Know their credit history and ability to repay the loan.
  • Review your budget carefully. If the primary borrower defaults on the loan, can your budget handle the added strain of another monthly payment?
  • Get copies of everything. In addition to the loan signing documents, request to have duplicate statements sent to you as well so you can keep track of the loan and confirm the primary borrower is not falling behind on any payments.
  • Get out as fast as you can. Have the primary borrower agree to refinance the loan under his or her name at some point in the future, as soon as their credit history and finances are better established.

Click here to read more on this story.

If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com

Bankruptcy Law, Credit, Debt Relief, Timothy Kingcade Posts

Debt Questions you may be Afraid to Ask

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Talking about debt can bring up all sorts of emotions, leaving some to worry in silence about their own debt or a family member’s finances.  Here some answers to some of the most common questions about debt.

Can I inherit my spouse’s or family member’s debt after they die?  This depends on the debt. The assets left behind after a death typically go towards paying off that individual’s debt.  After that runs out, the creditor typically suffers the loss.  Co-signers when it comes to student loans, mortgage debts and joint credit cards will likely be on the hook for any remaining balance.  Know the dangers co-signing a loan and make sure and carry enough life insurance to cover all of your debts.

Is there a limit to the amount of debt I can take on?  The answer is no, but it depends largely on the type of debt.  Lenders sometimes offer you more credit than you can pay back.  Think of a loan you would take out to start a new business or taking out a mortgage to purchase a new home.  Even if you qualify for the loan, be realistic about what you can afford to repay.

Can I be arrested for outstanding debt?  The answer is no.  The Fair Debt Collection Practices Act (FDCPA) bars debt collectors from harassing and threatening you with arrest or jail.  However, they can sue you for payment.  Know your rights when dealing with debt collectors and consult with an experienced bankruptcy attorney before receiving a court summons or being sued by a creditor.

If I file for bankruptcy, will ALL of my debt be erased?  Alimony and child support obligations cannot be erased in bankruptcy.  Student loans, certain tax debts and judgments against you can be difficult to get discharged as well.

Click here to read more on this story.

If you have any questions on this topic or are in a financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.

Bankruptcy Law, Credit, Debt Relief, Student Loans, Timothy Kingcade Posts

Co-signing a loan puts more than your name on the line

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Co-signing is an all too common practice, and gives you the opportunity to help another person.  However, this responsibility comes with great risk, and little reward.

For example, you might co-sign for a car you never drive, a house you never live in or even a student loan for someone else’s college education.  When you co-sign a loan, you essentially agree to repay the loan yourself.

A survey from CreditCards.com reveals the dangers of co-signing and why you SHOULD NOT do it.

  • 28 percent of co-signers saw a drop in their credit scores because the primary borrower paid late or not at all.
  • 38 percent of co-signers had to pay some or all of the loan payments because the primary person did not pay.
  • If your income is not high, you are more likely to be pulled into a co-signing nightmare. The survey found that 58 percent of co-signers who make less than $30,000 a year had to pay some or all of a credit card bill or loan they co-signed.
  • Most co-signing requests were for auto loans, followed by personal loans, student debt and then credit cards. About half of the people who co-signed were parents.

 

Here are some additional dangers of co-signing a loan.

  • You are not considered a backup borrower. You are equally responsible for the first payment to the last.
  • If the loan or credit card is not paid, the lender can start collection actions on you right away. Do not believe that lenders first go after the primary borrower and then the co-signer. Most likely, lenders will target “the person with the better potential to pay.”
  • If collection actions are pursued, you could end up paying late fees and even have your wages garnished.
  • Late payments and collection actions are reported on your credit report.
  • This may limit your ability to borrow because, as a co-signer, you are on the hook for the debt.
  • Even if the person you are co-signing for is responsible with money, you cannot predict what the future holds for his or her finances. What if the person becomes unemployed or unable to work?

As one consumer wrote, “I have told more than one relative that while I can guarantee their willingness to pay, I cannot guarantee their health or employment.”

Click here to read more on this story.

If you are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.