How can I get someone to pay off a loan that I co-signed for?
July 22, 2009 10:43 AM   Subscribe

What is the next step in getting someone to pay off a loan that I co-signed for?

5 years ago I co-signed a private loan (through Citibank) for a (former) friend who is an international student (and this is in the United States). (Not a great idea, I know.) I became worried about his intention to pay a year ago and had him sign a statement that he would pay down the loan by $1500 by September 2008, which he did and would pay off the remaining balance (~$5000) by September 2009.

I sent him an email reminding him about this upcoming payment, as we haven't spoken for a year, and he hasn't replied.

More details that may be useful:
- I'm concerned because he may be leaving the country by the end of the year when his student visa and OPT are up. He may also be trying to overstay his visa.
- He had been paying ~$25/month on this loan while he was in school. He was pretty flaky about paying on time and regularly though.
- He has also racked up quite a bit of credit card debt and has co-signed loans with other people. He has also been bad about paying bills on time. I am most concerned about getting my co-signed loan paid off.
- I have mentioned to him that incurring debt in the U.S. and then leaving the country will possibly put his ability to get a visa - work, tourist or otherwise - in jeopardy.
- He is now out of school and is currently working and making decent money, according to mutual friends and Facebook. I don't think that paying off this loan would be difficult if he is living frugally.
- Waiting for him to pay it more slowly is a possibility, but not a route that I'd like to go, as he is from a country with low salaries (~US$200-400/month for someone with his English skills and degree) and little/insecure Internet, and money transfers are expensive.

If he does in fact not pay off the balance by September 2009, what are my next steps? YANML, but some ideas on how I could proceed would be helpful for my own knowledge and as to use as a gentle threat. I'd like to be able to say to him something like: "If you don't pay the balance as we agreed last year, I will have to take you to small claims court" (or whatever the next step is.) Or perhaps I am SOL and this is why you don't co-sign loans for people. TIA!
posted by anonymous to Work & Money (7 answers total)
I'm pretty sure you're SOL, if he doesn't pay it back. As far as I can tell, the only legally binding agreement you have is the loan that you co-signed. If it doesn't get paid back, both of your credit ratings will take hits. Certainly, keep after him, but it does not sound promising if he is deep in debt and has several other loans co-signed by other friends. Good luck!
posted by katemcd at 10:54 AM on July 22, 2009

You have been easy for him to avoid. One email isn't going to prompt him to pay it since he doesn't really have any downside to not paying it. Call him at work. If he won't talk to you then call his manager and tell the manager you ahve been trying to speak to him but he isn't returning your calls. Call mutal friends ans say you are trying to clear up an outstanding debt with him. Mmaybe embarrassment will motivate him. I am confused about the payment structure you have with him, $25 a month doesn't sound like it would even cover the interest.
posted by saucysault at 11:03 AM on July 22, 2009

If he's from certain countries, he has to go through exit controls to leave the U.S. After 9/11, that was basically a list of countries with a significant population of Muslims--I'm not sure what the situation is now. This is playing serious hardball, but you might look into whether or not he can be prevented from leaving with debts outstanding.
posted by fatbird at 11:35 AM on July 22, 2009

I'd be very careful about making any threats. From what you've said he hasn't even defaulted on your agreement as yet, you're just concerned that he probably will.

A good place to seek information about the legal options available to you in the event that your acquaintance does default and Citibank seeks recovery of the outstanding balance from you is the ExpertLaw forums. My guess is that you'd be pretty much SOL, but they can tell you for sure.
posted by Lolie at 11:53 AM on July 22, 2009 [1 favorite]

As far as I can tell, the only legally binding agreement you have is the loan that you co-signed.

What makes you think that the statement he signed setting a date for when he needs to pay off the loan isn't legally binding? Even verbal contracts are legally binding, and I don't see any reason why a small claims court would declare a pretty standard agreement like that as not legally binding.

I'd be very careful about making any threats. From what you've said he hasn't even defaulted on your agreement as yet, you're just concerned that he probably will.

Yes, at this point he's not breaking an agreement so legally you can't really compel him to do anything. You're not technically a creditor so I'm not sure if the various laws around debt collection would apply to your situation. If you're really worried about him skipping town without paying, you may want to consider offering to let him pay off the loan for a lower amount (and you'll cover the rest) if he pays in cash right away and see if he'll agree to those new terms. Otherwise I think you're stuck with either trying to badger him until he pays it or just waiting until the September deadline rolls around.
posted by burnmp3s at 12:00 PM on July 22, 2009

IANAL, IANYL, etc, etc and all that but I have done a little bit of collections work in New York State.

If this loan goes to collection, the bank/collection agency/whomever will look at the file and go "okay, we can either go after the person who is no longer even in the country, or we can go after Anonymous." They will choose the latter. You will be hit with all sort of collection fees, your credit rating will take a hit, etc. If they're able to get a judgment against you, they can dock your wages and freeze bank accounts.

The bank is not going to care about any sort of agreement that you've signed with the other person saying that they would pay the loan in time. All they care about is that the people on the loan are The Other Person and Anonymous, and that loan is due.

(This is all NYS-based, of course. Other states can and will vary.)

If it were me, I would send friendly and persistent reminders to The Other Person, and also make sure that I had the money on me to pay the loan in September. If/When The Other Person flakes, I would pay it off immediately to avoid it going into collection. Then, if the person were still in the country, I would probably go to small claims court with the signed agreement and see where it got me. (This last part I admittedly know next to nothing about, so I don't know how far that would fly and all that.)

If small claims court didn't work, then I suppose I would chalk it all up to the Life Lesson Learned of "If someone to whom you are not related by blood asks you to co-sign a loan, say 'HELL NO' and run away as quickly as you can."
posted by Lucinda at 12:09 PM on July 22, 2009

Sadly, you will probably have to pay this one off yourself. You are 100% responsible for it in the eyes of the creditor.

If this was me, I would call the creditor immediately, offer an amount of cash (50%) to have you name totally removed from the account. Then get that agreement in writing before you send them any money.

Your credit is seriously being damaged by this. You need to act as if this is a loan you've taken out for yourself.

IANAL, but there is also a possibility you can recover what you've paid for him via a lawsuit.
posted by bensherman at 1:51 PM on July 22, 2009

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