Did I co-sign my life away?

December 3, 2004 1:56 PM

A cousin of mine, who I was very close with during childhood, has spent the last decade or so since high school in and out of prison, for drug-related offenses. A while back, after being out for a while, and working steadily, he decided that he wanted to go to college. I was the only person in the family with good enough credit to help him get a loan - if I didn't do this, he wouldn't be able to go to school. He spent a couple years in school, had to take out two more loans, and finally graduated. He has since decided not to pursue a career in the field that he studied, and I'm not exactly sure how he's making a living these days.

Earlier this year, I started getting letters from the loan people that they weren't being paid. After many phone calls and a lot of cajoling, we got him a deferment for a while, which ends this month, but I just pulled down a credit report, and now I have three huge black marks against my otherwise pristine credit rating. I guess I really had no idea what was being involved in being a co-signer to a loan like this. This is unbelievably stressful for me. So, my question is, in two parts: how screwed am I? Is there any way that can have these (rather significant, and probably ongoing) dings to my credit removed? If my worst fears are confirmed, and he continues not to pay, do I have any recourse? I am not in a position to be able to repay the loan myself, and the rest of the family has become eerily silent on the matter.
posted by majcher to Work & Money (29 answers total)

What do you mean by "not in a position" to repay the loan? How much money are we talking about here?

IANAA, but as far as I've read, you don't really have any legal recourse; co-signing on a loan is serious business. Since there's no asset to sell, you've got to either start paying up and wait seven years for the black marks to come off your record or... file for bankruptcy if the amount is large enough, I guess.
posted by bcwinters at 2:19 PM on December 3, 2004

If you could elude the consequenses of co-signing this loan, then so could any co-signer, and banks would stop letting people vouch for each other. In other words, you're in the same position as if you'd borrowed the money yourself. (Was this really not made clear to you when you co-signed for the loan?!)

So, you need the same advice as does anyone who took out a loan and can't pay it back: you can talk to the lender and see if they'll forgive part of the loan if you commit to a payment schedule, and if they'll notify the credit bureaus that they no longer consider the loan in default. Or you can look into filing for personal bankruptcy.
posted by nicwolff at 2:19 PM on December 3, 2004

That is why the Bible (in Proverbs) says NEVER to cosign a loan. Seriously.

The whole point of having a cosigner means that the loanseeker is such a bad risk that someone else has to be in the loop to pay if he finks out. That someone in this case is you.
posted by konolia at 2:22 PM on December 3, 2004

I am not a lawyer, but . . .

Yeah, I think you're pretty screwed. You signed a Contract, explicitly assigning liability to yourself in case your cousin doesn't pay. Read your agreement very carefully, and it should be pretty clear as to the extent of your liability.

You do have a recourse, though. You can sue your cousin for the money you paid on his behalf. Small claims court is cheap and easy, but it has minimum amounts you can collect.

As far as your credit, after the loan is paid off/up-to-date, call the agency that put the dings there, and demand they remove them, because the situation was not under your control. The people who put them there are the only ones who have the power to remove them. If you insist strongly enough, they'll do it. It worked for me once.
posted by Iason at 2:24 PM on December 3, 2004

Response by poster: How much money are we talking about here?

We're talking about about $40,000 here. Unfortunately for me, the economy is not as good as it was when I co-signed, and we've since bought a house and so forth, and my extra cash flow is approaching zero. I admit that I didn't do my due diligence research on what I was getting into - I sort of got the family ambush guilt attack, and literally signed the papers in the middle of the night when the train I was on stopped in their town for five minutes.

/me goes back to making phone calls...
posted by majcher at 2:29 PM on December 3, 2004

Well, that's definitely too much for small claims court. Ouch. Good luck figuring this out!!
posted by bcwinters at 2:32 PM on December 3, 2004

The news is bad, you're liable for the loans if he doesn't pay them, that's what a co-signer is.

Sue him and establish a record of trying to get the money from him to pay them and you might be able to work something out with the creditor.

This is a very shitty and expensive lesson to learn. I learned it on a small $7000 loan.
posted by fenriq at 2:33 PM on December 3, 2004

I am sorry for the predicament that you find yourself in, but it is highly unlikely that you will be able to easily 'repair' your credit rating and credit agencies are unlikely to remove the data they are holding against you.

It may be harsh, but from a credit rating perspective, it sounds as though the black marks against your name are perfectly valid. From what you have said, you are in a position where you have a $40000 liability with no assets. Given these simple facts, any finance house would be mad to lend to you except with exceptional terms. Even after the debt has been cleared, your track record of getting into such a precarious position will count against you - in essence, a future lender should continue to be worried that you might get yourself into a similar situation again (in which case they may be unable to recover the loan.

------

As others have said, no-one should ever co-sign a loan unles they are prepared and able to repay it.
posted by daveg at 2:50 PM on December 3, 2004

how screwed am I? Very, to the tune of $40k, plus collection costs and attorneys fees (if you get sued by the lender, which you will if you don't start paying).

Is there any way that can have these (rather significant, and probably ongoing) dings to my credit removed? No. It doesn't matter whether you "had control" or not, because YOU entered into a contract and obligated yourself to take over repayment if your cousin failed to do so.

do I have any recourse? You could sue him pro se (without an attorney) in District Court (Superior Court if you in NYC). Or, you could hire an attorney on a contingency fee basis, but no attorney will take that case unless your cousin has assets. Furthermore, winning a judgment is one thing, collecting is an entirely different matter.

look into filing for personal bankruptcy. Look all you want, but student loans like child support and taxes cannot be included in bankruptcy petitions.

Here's the deal..... you are obligated to pay the debt. Period. Call the lender and set up payment arrangements before they file a court action against you. How serious is this? Well let's see.... I'm the lender and sue you in District Court. The Court grants me a judgment, which will be much higher than $40k once I add in interest, court costs and attorneys fees (if the contract provides for this, most likely it does). Then when you don't pay, I garnish your wages, levy your bank accounts, put a lien on your real estate, and take your income tax returns. Not pretty, is it? CALL THE LENDER AND TRY TO WORK IT OUT NOW!!!!

I really hope that a lot of people read this and grasp the seriousness of cosigning.
posted by Juicylicious at 2:53 PM on December 3, 2004

Is there any way that these loans can be consolidated? That may not take the burden off you, but it could cool down the interest accumulating on them somewhat.

Also: due to your foolishness and bamboozlement kindness, your cousin now has a college degree, and you have a mound of debt. I don't have a degree myself, yet I have a decent-paying job which covers my student loan payments, among other things. I advise you to get in touch with him immediately and apprise him of the situation you are facing. Regardless of his past difficulties, he now has the tools which enable him to be employed pretty much anywhere if he gives a damn. Yes, it's your responsibility (unfortunately), but it is his responsibility too. This is just as much his situation as it is yours and there's no reason why you should have to be going through all this alone.

I wish you much success in getting this worked out, it sounds like a massive nightmare.
posted by contessa at 3:05 PM on December 3, 2004

Some suggestions:

1) Call the lender, and offer to pay some percentage of points on the dollar right now in exchange for their removing the negative marks from your credit report. Better yet, call a debt consolidation expert or attorney and have them make the call on your behalf.

2) I have no idea if this is actually a good idea or not, fiscally speaking, but you say you've bought a house. Interest rates are low - you might want to look into taking out a home equity loan and using it to pay off the other loan (or whatever you can negotiate it down to).

3) Have a frank discussion with your cousin, find out what the deal is, and possibly knock some sense into him. And give him a major fucking guilt trip for putting you (the only person who stuck up for him) in this situation without even the decency to call you and let you know.

4) If you can't get them to remove your negative marks, you'll just have to live with that. Your only recourse may be to put an explanatory note in the file, but that may not help at all. Start rebuilding your credit now.
posted by Caviar at 3:20 PM on December 3, 2004

go see a good lawyer, ASAP. don't get your legal advice off the internet, unless it is a reputable source like NOLO.

that said, I want to correct one mistake in this thread -- it IS possible to discharge student loans through bankruptcy, but it is very difficult and you are held to higher standards than for other kinds of consumer debt.

I don't know if it will be useful, but I found a number for the Department of Education's Ombudsman: 877-557-2575

Good luck! You were foolhardy but your heart was in the right place. Maybe some good karma will come your way.
posted by insideout at 4:01 PM on December 3, 2004

call a debt consolidation expert

Google: debt consolidation
8,810,000 hits [one out of every 1000 pages that google indexes]

If you go the credit counseling route [most people who do go have lots of debts from lots of creditors, not one major loan, so you'll be a bit unusual], don't just use the yellow pages or follow the first link on the web that you see to pick an agency. You're looking for a nonprofit organization with minimal fees. In no case should you have to pay anything to talk to a counselor, and beware of promises that seem unrealistic. (A streaming Federal Trade Commission video on fraud in this area is here.)
posted by WestCoaster at 4:16 PM on December 3, 2004

it IS possible to discharge student loans through bankruptcy, but it is very difficult and you are held to higher standards than for other kinds of consumer debt.

Could you substantiate this?

**It is possible to have federally backed student loans forgiven, but the standard is incredibly high.
posted by Juicylicious at 4:22 PM on December 3, 2004

I ask, because it makes a big difference: are these Federal Student Loans, or bank loans?
posted by contessa at 4:43 PM on December 3, 2004

-I am not in a position to be able to repay the loan myself, and the rest of the family has become eerily silent on the matter.

-I sort of got the family ambush guilt attack, and literally signed the papers in the middle of the night when the train I was on stopped in their town for five minutes.

These people may be your family, but they're sure as hell not your friends. Are there pressures you can bring to bear on them from any other parts of your family, so that maybe they'd help you out, or shame the cousin into using the degree that you got for him?
posted by PinkStainlessTail at 5:45 PM on December 3, 2004

How about some help from the family members who twisted your arm, and helped you get in this pickle in the first place?

Tough spot. Good luck and God bless.
posted by sacre_bleu at 5:47 PM on December 3, 2004

Did you co-sign for the additional loans that were taken out?
posted by ajr at 5:50 PM on December 3, 2004

It is possible, although very difficult, to discharge student loans claiming undue hardship. See 11 U.S.C [Section] 523 (a)(8).

For an example, see here: IN RE BAKER, United States Bankruptcy Court, Eastern District of Tennessee, 1981, 10 Bankr. 870

Buena suerte!
posted by bakiwop at 6:42 PM on December 3, 2004

Juicylicious - IANABL, but 11 U.S.C.A. § 523(a)(8)(B) allows discharge of student loans where "excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents." The statute does not define "undue hardship," and the courts have interpreted it very ungenerously. You're right that there are separate procedures for cancelling student loans (death of the debtor, permanent disability, etc.) that are different from discharging them.

More info at 144 A.L.R. Fed. 1 if you have Lexis and really want it!
posted by insideout at 7:53 PM on December 3, 2004

oops, bakiwop said it shorter.
posted by insideout at 7:55 PM on December 3, 2004

put a lien on your real estate

Thankfully, not if you live in Florida. But it's not like this benefits me, because I don't have any outstanding loans, and I don't own any real estate.
posted by oaf at 8:17 PM on December 3, 2004

here's the answer.
posted by buriednexttoyou at 8:37 PM on December 3, 2004

majcher: Review this thread about student loans, paritcularly my post there (the forbearance link has gone dead, though). Then thoroughly read the ED's student guide to financial aid and specifically borrower rights & responsibilities.

First, this is very serious business, as you've discovered. Co-signing makes you personally responsible for the loan. The bad news gets worse: not only can this go on your credit report, but like any bad debt they can take you to court and get a judgement, which will be much more of a black mark than a few missed payments, and ultimately -- since student loans are guaranteed by the federal government -- you can start having your tax refunds held back and face wage garnishment or asset confiscation.

The good news is that the feds know that student loans are hard to repay and offer lots of ways to handle shortfalls. There are temporary deferments; you probably want to look into a longer deferment called a forbearance, and then change to a different payment plan that you can afford. It's difficult to actually discharge a student loan, but it can be done in rare cases; I wouldn't count on it, though.

Now there's the matter of you and your cousin. You'll have to talk to a lawyer, most likely, in order to properly declare this a bad debt and write it off (yes, you can do that, at least), and seek repayment or other compensation from him. I think it's important that you do find out what the heck he's doing so that you can at least point the collections people in his direction instead of as well as yours. At worst, you can sue him yourself (and at $40K, we're not talking small claims here).
posted by dhartung at 9:05 PM on December 3, 2004

How much are the monthly payments, and how many family members pressured you into signing the loan? You might not be able to afford (say) $200 a month, but you might have $20 family members who could each afford $10.

If you go this root:

1. Remember that, from the government's point of view, you will still be personally responsible for the loan.

2. Try to set up some sort of automatic withdrawal from your various family member's bank accounts, so you don't have to make 20 phone calls every month to get the damn $10. (Also, people will probably begrudge the money less if it is done automatically--it tends to become invisible.)

3. Get your cousin to put something in writing saying that you (and your associated family members) are loaning him the money and he will have to pay it back as soon as he is financially able to do so. Odds are good you'll never get paid back anyway, but you never know.

4. Keep in mind that I don't have any experience in this field and am just brainstorming, so please check any advice I give you with somebody who knows what he's talking about.
posted by yankeefog at 4:10 AM on December 4, 2004

Wow. What a truly crappy situation.
I think that a lot of useful information has been posted and I won't reiterate it. I will, however, second the idea of getting these loans into consolidation while the interest rates are low. If you spread the payback over thirty years (double ouch!), you may be able to swing the payments without family help. And who knows? Maybe sometime during that thirty years your dirtbag cousin will grow a spine and assume his rightful debt. (Along those lines, I'd be sending him a monthly postcard saying 'Here's what my family has given up this month to pay for your education.') Good luck.
posted by FredFeral at 4:44 AM on December 4, 2004

Along those lines, I'd be sending him a monthly postcard saying 'Here's what my family has given up this month to pay for your education.'

Nothing to add in terms of suggestions as to what to do (though I certainly second the ideas of getting the loans consolidated at as low an interest rate as possible, and doing what it takes to try to get wages garnished from your bastard cousin if at all possible), but I did want to say that the part of me that feels sick with rage on your behalf, Majcher, really loves this idea from FredFeral. "This month, we once again didn't go to any restaurants or movies, and we put $300 less into our retirement funds and our own children's college funds than we would have otherwise been able to afford."

I'd show a running tally of how much you've paid and how much is left on the debt, too. I'd also possibly send a tally (if not monthly, then yearly -- perhaps around the holidays!) to the family members who participated in the ambush guilt trip to show how much you've paid up to that point. ("Amount paid this year for Do-Nothing Cousin's Thrown-Away Education: $4,500. So please accept our best wishes for the holiday season, as we once again cannot afford any gifts!")
posted by scody at 10:03 AM on December 4, 2004

I'd advise against scody's suggestion. I've been in similar situations (not to the tune of 40k, thankfully) and it's too easy to let these types of things eat away at you. And who knows, maybe your cousin will come around some day (unlikely). You did a nice thing and got burned. Now move on.

Work the phones and your signature hand until the loans are consolidated. From my experience, with a $40k debt, you may be able to work it down to a $100-$150 month--initially, for the first say 18 months, after which it may even double. This may be painful for you, but hopefully it won't put you in the poor house.

The simple rule is never lend anybody (and that's what you did really), family or friend, more than $2,000 without involving some kind of formal acknowledgement of the debt and intent to repay.
posted by nixerman at 11:06 AM on December 4, 2004

Unfortunately for me, the economy is not as good as it was when I co-signed, and we've since bought a house and so forth, and my extra cash flow is approaching zero.

If you have any significant equity in the house (or maybe even if you don't), you might consider getting some family members (your cousin's parents?) and/or friends to loan you the money to pay off the loan (assuming no significant prepayment costs to do so), using your house as collateral (that is, offering them a secured loan, at least to some extent).

Given that you seem to be a much better credit risk than your cousin, and have a house, you might be able to essentially give up future equity (price increases) in your house in exchange for dealing with the $40K you owe now. Even a $5K loan to you would give you some breathing room, if you stick the $5K in a bank and use it for payments for the next few years.

The above suggestion isn't the same as getting a home equity loan, since (a) it doesn't presume that you have much equity, and (b) any home equity loan would result in yet more loan repayments, which you probably want to avoid, given your current cash flow for at least a few years. A family member or friend might well agree to rolling the interest amounts in the first five years into what is owed, as well as deferring payment on the principal.

For what it's worth, if a good friend of mine came to me with this problem, I'd make a loan to him/her, particularly since other safe investment alternatives (money market funds, treasury bonds, CDs, etc.) don't pay that much these days).
posted by WestCoaster at 2:06 PM on December 4, 2004