What my clients were telling me didn't seem too bad at first.
John and Michy (were getting kind of itchy to leave the folk music behind) owned a house worth about $75,000 with a mortgage of $45,000 that was up-to-date. There were two cars, one fairly new (2013) and one older (2007) and there was money owed on each, though the 2007, bought used, was almost paid off. There was some credit card debt, about $15,000--not an extremely high amount, if they were both gainfully employed. Michy had a good job. She was a teacher making about $50,000 per year. John, unfortunately, had some medical problems that prevented him from working. John had no disability insurance, either at work or privately. He was considering applying for Social Security Disability (Steidl and Steinberg handles these cases, by the way).
But in the meantime, they were down to just Michy’s income. With this reduction in income, and the probable long wait and uncertainty of SSD payments, they could not pay on the credit cards. Looks like a good case for a Chapter 7 Bankruptcy. They could get rid of the credit card payments and focus on paying their normal monthly expenses such as the mortgage payment, car payments, food, utilities, insurances.
Then they hit me with the bombshell: they had co-signed for their son’s student loans. How much? $45,000. No problem, I said. I’m sure your son is making the payments.
Their son had some problems of his own; he had been unable to find adequate employment, was divorced and paying child support, and he was living with them! He hadn’t made a payment in over two years. The student loans had been turned over to a collection agency, and the agency had gotten aggressive. They were calling every day and sending letters. The last time they called, they threatened to not only take my client’s tax refund, but they were threatening to garnish Michy’s wages. And the garnishment was not going to be with onions and relish.
Can they do this? John and Michy asked me this question, and I nodded affirmatively.
When you co-sign a loan, it is as if you signed for it yourself, with all of the obligations that come with it. Co-signing does not mean you are responsible for half. It means you are responsible for the entire amount. And, in this case, the situation is exacerbated by the fact that student loans are difficult, if not impossible, to discharge in a typical bankruptcy situation.
What is the so-called moral of this story? Don't co-sign loans unless you are prepared to handle all of the consequences of paying the loan yourself. This happens to so many of our clients. In this case, we were able to help John and Michy, despite their leaving the folk music behind. We were creative, but you have to read our other blog articles to see how we did this, particularly the ones on student loans.
If you are already in co-signing trouble, we may be able to help you also. There is only one way to find out. And the consultation is free at Steidl and Steinberg.