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Thinking of cosigning a loan? What could possibly go wrong?
When you cosign for someone else, you are considered to be equally responsible for repayment. If the other person doesn’t pay then you’re going to need to do so.
The lender can take all collection activities against you, including starting a lawsuit. Your wages can be taken, your bank account frozen, and a lien placed on your real estate.
It doesn’t matter if you’re first on the loan or second – you’re 100% liable for repayment when you cosign, just like the other person.
It Requires Trust
When deciding whether to cosign for a loan, it’s not enough that you love someone. You need to have an objective belief that they’re going to live up to their end of the bargain and make the payments.
A little while ago I had a woman come into my office to talk about her bill problems. We didn’t think bankruptcy was her best option – until she started talking about cosigning for a friend’s car loan. The friend didn’t pay, moved away and left my client holding the bag for the deficiency judgment after the car was repossessed.
There was also the father who had cosigned for student loans for all four of his children, none of whom had made any payments on them after graduation. With over $300,000 in unpaid student loans at the age of 61 years old, the father found himself talking with me rather than spending his time elsewhere.
You Probably Can’t Get Out Of It Later
When you cosign for a loan, don’t assume you can get your name off the documents later on. If the other person makes timely payments then perhaps the lender will do so, but if the loan goes into default for nonpayment then there’s no chance you’re getting out of it.
If the other person doesn’t pay, you need to assume you’ll be on the hook for the money.
Cosigners And Bankruptcy
If the other person files for Chapter 7 bankruptcy, that impacts their responsibility for repayment – not yours. If you want protection, you’re going to need to file for bankruptcy as well.
If the other person files for Chapter 13 bankruptcy, collection activities against you have to stop while the Chapter 13 is going through the court system (assuming it’s a consumer debt as opposed to a business one). But at the end of the other person’s case, the lender will come knocking on your door for the unpaid balance (plus interest).
Again – if you want to get out from under your cosigner liability, you’re going to need to think about coming to see me.
Cosigners And Debt Settlement
If you cosign for a loan and the other person settles the account, that’s going to impact them as well. The only way the lender settles with you is if your name is on the settlement document. More often than not, settlement with the other borrower doesn’t mean a thing for you.
Before It Becomes Trouble
If you’re thinking about cosigning for a loan, assume the worst happens and the other person doesn’t pay the debt. What will you do, and how will you react?
How badly will it influence your personal relationship with the other person?
Can you afford to keep the payments going if you need to do so?
In the words of Dirty Harry – do you feel lucky?
These answers will help guide you as you dive into the world of the cosigner.
Image courtesy of  quinn.anya
Cosigned For A Loan Or Thinking About It? Consider The Risks First. was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.

The Atlanta Journal Constitution ran a front page story on Sunday, April 14 entitled More than 40% of Georgia Homes Underwater.  The AJC reporter notes that “there’s not another metro area in the United States with as many concentrated pockets of mortgage holders who are underwater in their homes.  No place else comes close.”Your house is considered underwater if it is worth substantially less than what you owe.  From the mid-1990′s through the mid-2000′s, home values in metro Atlanta rose and mortgage lenders offered outrageous deals to encourage residential purchases.  It was common to see interest only loans or 100% financing which required nothing down from the purchaser.As long as home prices kept rising, you could refinance over and over, and even take cash out.  Rising prices minimized the risk to lenders so loan underwriting standards were lax.  I regularly spoke to potential bankruptcy clients who earned $50,000 to $70,000 annually but were living in $350,000 to $400,000 homes.  They were meeting with me to deal with excess credit card debt – in many cases, these folks kept their expensive homes even while filing bankruptcy.When the real estate market crashed in 2008, your home value may have plummeted, but the mortgage obligation remains.  Thus, as the AJC points out, there are many areas in metro Atlanta where homeowners are making mortgage payments on homes that may never increase in value to the balance on the loan – the mortgage is kind of a permanent rental.So, you may find yourself in a frustrating situation where you make enough money to cover your monthly expenses and pay your mortgage(s) but because your home is worth far less than you owe, you are stuck with a house you cannot leave.What are your options if your house is underwater?First, you can try to ride out the storm by continuing to make the payments with the hope that your property value will someday increase.  If you like your neighborhood and plan to stay, or if your are within sight of break even, this may be your best option.A second option is to simply walk away and turn the keys back to the bank.  This option has some risk because the mortgage lender does have the legal right to sue you for breach of contract.  If the lender forecloses, it can pursue a deficiency balance claim, or, if the lender chooses not to foreclose, it can simply sue you on the note to get a judgment.In recent years I have not seen much inclination by banks and mortgage lenders to pursue claims against homeowners, but that could change.  You could walk away today and find yourself with a lawsuit at your door in 5 years.  Further, walking away from a mortgage will damage your credit profile severely.You can try to convince the bank to accept less than the amount due as a payoff if you receive a purchase offer.  This is called a “short sale” and in certain circumstances mortgage lenders will accept short sale offers.  You will have to fill out reams of paperwork and wait for a decision, and you may still end up owing a balance and/or find yourself with a debt forgiveness tax bill.The bankruptcy process offers additional options that can produce predictable and definitive results.  And you do not have to be down to your last dime to file bankruptcy – it offers a much broader form of relief than it once did.If you file Chapter 13, you can surrender your home and walk away, while paying back your other debts 100% if you wish or less than 100% if you qualify.  Your lender becomes an unsecured creditor whose claim will be treated like every other unsecured debt and discharged, and there are no debt forgiveness tax penalties in a bankruptcy.If you qualify for Chapter 7, you can surrender your home and walk away, and your unsecured mortgage balance will be discharged when your Chapter 7 discharge is issued – usually about 5 months after filing.  A discharged debt can never be collected, and you can move on with your life.If you have a first and a second mortgage, bankruptcy also offers an opportunity to strip away your second mortgage.   Available in both Chapter 7 and Chapter 13, a lien strip can work if your home is worth less than the payoff balance on your first mortgage.   A lien strip thus offers a process whereby you can keep your home but reduce the total balance due by eliminating the second mortgage.You cannot strip away or modify a first mortgage, but you do have options with your second mortgage.While it may seem odd to consider bankruptcy if you are earning enough money to pay your bills, Chapter 7 or Chapter 13 may function as method to solve your underwater mortgage problems.  Bankruptcy may be a viable option or not – but you won’t know if you don’t call.  If you’d like to learn more about your bankruptcy and non-bankruptcy options, please contact Jonathan Ginsberg or Susan Blum at 770-393-4985 or contact us by email at ginsberg.bankruptcy (at) gmail.com.The post File Bankruptcy if You are not Broke? Maybe Not Such a Crazy Idea appeared first on theBKBlog.

Chapter 7 bankruptcy can last anywhere from 100 to 120 days from start to finish.  It basically works like this: once the Chapter 7 bankruptcy case is filed, there is a notice that goes out to all creditors, the debtor and the debtor’s attorney advising of an upcoming meeting called a 341 Meeting of Creditors. + Read MoreThe post How long does the bankruptcy process take? appeared first on David M. Siegel.

It happened again this week. The client comes into the consultation smiling broadly. He just needs help with a loan modification, he argues. He doesn't have any other debts. "Look," he says, pointing at his credit report, "it's been charged off!"

Sorry, that's not what it means. A "charge off" is an accounting entry by the lender declaring that the debt is uncollectible, a determination that helps the lender deduct it as a loss against his taxes.

The "charged-off" account is still a live debt of the borrower until such time as the statute of limitations runs out and that can vary from three to seven years and depends also on the type of debt. In this area -- Maryland, Virginia and the District of Columbia -- you will need to check the law in the jurisdiction in which you reside.

So, remember, you are still "on the hook." In fact, many of these debts are sold to debt investors at a large discount, such as Portfolio Recovery Services, Midland Funding, Portfolio Recovery, or LVNV Funding who make it a business to recover on this stuff via lawsuits and other means.

Also, it may be more harmful on your credit report as a "charge off" than actually eliminating all legal liability and having it read "discharged in bankruptcy."

One of the factors a mortgage lender takes into account when deciding on whether to grant a borrower a loan modification is that borrower's "back end" ratio. Too much other, non-home-related debt, such as charged-off, but still live debt, can nix the modication.

So don't rest easy just yet. Consult an attorney knowledgeable about debt issues, and see what the options are to deal with this.