People often co-sign debts without realizing that there can be severe consequences down the road. For instance, a lender can sue a co-signor if the primary borrower defaults. Read on to learn more about these insidious lawsuits.
Co-Signing a Loan is Very Serious
Co-signing on a loan for a friend or family member seems like a simple way to help. However, not everybody realizes that a co-signor is 100% legally obligated on the account. This means that a lender can legally collect the account from the co-signor in the event that the primary debtor defaults.
Lenders allow co-signors because it gives the lender an additional person from whom the lender can collect money. Some people mistakenly believe that they are merely lending their credit score to a loan application.
Co-signing a loan for a friend, distant relative, or boyfriend/girlfriend can be especially dangerous. You really do not want to get left holding the bag on a car loan for an ex. That just is not fair at all!
Lenders Can Sue You Over Co-Signed Debts
Let’s pretend that a debtor stops making payments on a car loan. You co-signed the car loan. The lender can legally go after both the original borrower and you as the co-signor. In fact, the lender doesn’t even need to sue the original borrower. A lender can file a lawsuit solely against the co-signor!
A co-signor doesn’t have very many defenses in court. The co-signor agreed to be liable on the loan. A co-signor can try to file their own lawsuit against the original borrower. But that is an expensive and time-consuming process.
The Easy Solution
The easiest solution to this problem is simple. A person should not co-sign loans! Lenders are giving less and less importance to co-signors on loans these days. This means that adding a co-signor to a loan only marginally increases the chance of the loan being approved. But as I discussed above, the consequences for a co-signor can be huge.
Bankruptcy might be a good option for a person facing a lawsuit over a co-signed debt. There is absolutely no realistic reason why a person should pay off a car loan for someone else.
Call my office today at (916) 333-2222 to discuss your bankruptcy options if you are being sued over a co-signed debt.