“Will you CO-SIGN?” Understand the risk. 

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“Will you CO-SIGN?” Understand the risk. 

by | Sep 17, 2021 | Bankruptcy

Proverbs 22:26 states “Don’t agree to guarantee another person’s debt or put up security for someone else.”  Holy Bible.  New Living Translation Version, https://www.biblegateway.com/passage/?search=Proverbs+22%3A26&version=NLT.

Claire, your daughter, is 19 and wants to purchase her first car.  However, she does not have good credit.  The dealership says you can co-sign for the car but never really explains to you what that means.  Your daughter pays her car note for two years but then she loses her job.  Claire can no longer afford the vehicle.  You have a good job but cannot afford the additional payment.  The creditor repossesses the vehicle and sells the vehicle, but the creditor sells it for less than what you and your daughter owe.  The creditor sues you and your daughter for the remaining balance on the loan.  You are now unable to pay for your car because your check is being garnished for your daughter’s debt.

This is far too common a scenario. When you co-sign for a debt, you are making yourself responsible for the debt.  When you sign for a debt, you are responsible for the debt regardless of whether you sign first or second on the loan.

The risk is that the person you are co-signing for will not make the monthly payments and you will be responsible.  No one plans on not being able to make their monthly payments.  Circumstances change, life happens.  The result is that sometimes you are not able to make your monthly payments.  The risk to the co-signer is the same for a house, car, apartment, student loan, pay day loan, household goods loan, or any loan of any kind.

When you are thinking of co-signing, ask yourself two questions:

  1. Can I make the new payment each month in addition to my regular monthly expenses? If the answer is yes. Then you can be a co-signer.  If the answer is no, then you do not need to sign as a co-signer.
  2. When was the last time, I was able to force this child, friend, partner, spouse, or family member to do anything? If you have to think for more than 30 seconds about this question, then you do not need to co-sign for this debt.

Understand and think about the consequences of your co-signature.  You could become a financial victim to another person’s choices or unforeseen circumstances.

If you are being sued or garnished due to co-signing for another person’s debt, bankruptcy can help.  Give us a call at 1-800-NEW-START for a free initial consultation.