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Love, Co-Signing & Bankruptcy

Woman worried about her debts

I’m a bankruptcy attorney with Lincoln Law. This means I get to speak with and listen to a number of people every day that are considering bankruptcy. I’ve been doing this work for almost 16 years now and have helped over 10,000 people struggling with too much debt.

If there’s one thing I’ve learned from all that listening, and that most people sitting across my desk from me didn’t really understand, it’s this:  Co-signing on a loan for somebody else is just the same as taking out the loan yourself. I’ve seen thousands of people filing for bankruptcy because they co-signed on a loan to help someone they love.

It’s hard to say no when your husband, who doesn’t have great credit, asks you to cosign on a loan to make the widgets that he thinks are bound to take the youth soccer leagues by storm.  It’s hard to say no when your adult daughter, who’s been in and out of work for years, begs you to co-sign on the loan for the car she really needs to get to work.  You feel responsible for these people.  You feel like if you say no, then you don’t really love them.  Or at least they make you feel that way.

So, you go ahead and sign the note for a $150,000 lease of the equipment.  You sign the papers for the car.  You don’t really expect to be on the hook because your child has a great job right now, and their commissions should kick in just as soon as they make a few sales. You don’t ever expect to have to pay off the lease because your husband’s business idea is just terrific and can’t be anything but a huge success.

The truth of the matter is this. When a person co-signs with another person on a loan, each signer is saying they will be responsible to pay back the debt. The lender looks at both signers as a way to get their money back. So, if your husband’s business fails, the leasing company will look to you to repay the lease, with its monthly payments of $5,000/month. If your daughter’s commission-only sales job doesn’t pay off and she can’t make payments on the car, the financing company will call you looking for the monthly payment. If you signed the loan papers, you’re on the hook for the entire amount.

So, if you are ever asked to guarantee a loan, or co-sign on a loan, don’t do it . . . unless you are able to make the whole payment without any contribution from the person asking you to help them out.  If you can’t make the payment, you might be forced into bankruptcy because of somebody else’s mistakes.

It’s true everybody has to have a dream. Sometimes though, the dreams don’t come true, and co-signers are left to pick up the pieces.


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