Is my debt going to ruin my parents' credit?

October 20, 2008 7:09 AM

How will a line of credit that my parents cosigned affect my ability to enter into a debt repayment plan through credit counseling?

I've reached a breaking point and I need some help figuring out how I'm going to deal with my debt. I already plan to speak to a credit counseling service and possibly a trustee in bankruptcy next week, but your advice is greatly appreciated. In general, I understand what's going to happen in terms of setting up a repayment plan or a consumer proposal. I'm concerned because part of my debt is an $8000 line of credit that my parents cosigned for me when I was a student.

Is there a way for me to address my debt woes without screwing up my parents' credit? Secondary question: how do you talk to your parents about stuff like this? They're going to be horrified and disappointed in me and it's making me sick thinking about it.

Supporting details: I'm in Canada, I'm 35 and I owe about $45K total ($36K credit cards, 8K line of credit and 3K overdraft). I have no assets and I'm just getting back to work after losing my job a couple of months ago. My parents could almost certainly pay off the line of credit easily... they're pretty well-off, but a little sensitive about money right now because my dad is retiring next year. Our relationship is OK but not fantastic.

Throwaway gmail account is [e-mail].

posted by anonymous to work & money (5 comments total)

This would be easy to answer if you were in the US. In the US your parents would be just as on the hook as you are, so there's no way to roll this into any kind of protection (the whole reason a bank wants someone else to sign with you).

They really need to know. They may want to discharge the debt.

In the US entering into a consolidation looks the same in your credit report as an actual bankruptcy. Not sure how it plays in Canada.

Also, many consolidation services are a step away from being scams. They have you deliberately refuse to pay, then negotiate for a reduction in principal. And many consolidation services are worse at making the actual payments than you will be.

You didn't mention if your new job will pay sufficiently to stand for your debts. If it will, call the people you owe, ask for a delay in payment. Let them know you intend to make good. Mention that you are considering bankruptcy if they balk at the idea.
posted by cjorgensen at 7:24 AM on October 20, 2008

You're broke. You aren't bankrupt.

All advice following is based in America. Canada may not be 100% the same.

If you've already been late on the LoC, then the credit on both sides is already getting dinged up for all names on the account. You'll just have to work on getting it paid back so it looks better.

First, quit spending any money. At all. If it's not rent on your apartment or electricity to keep the lights on, don't spend it. If you have a bike and can bike to your new job, do that instead of driving, cause gas and car upkeep is even more money.

Make a budget. Only the essentials. If you don't have it on your budget, you can't spend it for the month.

Sell stuff you don't need. You can't take it with you when you die anyway.

Run a debt snowball to get the debts taken care of, smallest to largest. Every penny you don't need goes to these bills. Minimum payments on all of them, everything left goes to the smallest bill. You may amend this to take care of the 8k debt with your parents name on it first.

Take up a second job. I'll not be too harsh on you, but probably should have worked nights at McDonald's or Tim Horton's while you didn't have a job for that couple of months. Places like that always need help, and you always need money.

You can get all this paid back, it's just going to take time. Bankruptcy will kill your credit, and paying back things is the right thing to do.

I know I may have sounded rough, but keep your chin up. You'll get back on track soon enough, and you'll be winning at your money and your life.

Take a listen to Dave Ramsey if you don't already. I love his message on money, even if there's a strong religious theme. You can tune out the portions of the religion if you're not the church-going type.

Take care, fellow Me-fite. You'll be making it soon enough.
posted by deezil at 7:36 AM on October 20, 2008

Good for you in tackling this. My sister is going through something similar with our parents, so you have my sympathy. If you declare bankruptcy your parents are on the hook for the full amount of the $8k. I am surprised your parents haven't been receiving calls about the $8k (assuming you haven't been paying the minimum). Can you approach your parents and ask them to pay off the $8k and you pay them back with a set payment plan? You wouldn't need to bring up the other debt if you budget yourself and stick to the budget while making consistent payments. You can frame it positively "I want to buy a house/get my finances in order and have separate our debts." You can pay it back, it took me about two years of hard work to clear $40k student debt while also being the breadwinner of a family of four. And, like you , I am of that generation in Canda that got screwed over the lack of jobs after university. Good luck!
posted by saucysault at 8:03 AM on October 20, 2008

I guess all your cards are maxed out? Maybe you could transfer the line of credit debt to another card before consolidating?
posted by bonobothegreat at 8:57 AM on October 20, 2008

Be very careful when entering into credit counseling. It's become known that some of these places actually hold onto the money you pay them, instead of paying off your debts, because they know it's easier to get the credit card companies to talk to them when the account is actually in default.

I echo the sentiment of the poster above: you should call them yourself. You need to express that you have been in difficulties, that you have a new job, that you intend to pay off the debt and satisfy all debts you owe, and ask them for a consideration. If they say no, then tell them that you are sorry but while it is your intention to pay everything off, you may need to consider going into bankruptcy and no one would want that, could they lower your payments/your interest/give you a three month no-interest deferral? If the person you talk to says "no, I can't do that" then ask who you can talk to, and if they insist that no one else can help you, hang up and call again.

Also to another point: see if one of your lines of credit wouldn't be willing to extend the line in order to accomodate all the debt including the LoC.

creditboards.com is a good forum with lots of information about consolidating debt, credit counseling, etc.
posted by micawber at 10:02 AM on October 20, 2008