Co-signing is a very touchy subject. For many who do it, they do not regret it. But then, probably in a large percentage of cases, the co-signer lives to regret it. Why? Well, there is likely a reason that the co-signee needs a co-signor. They have no or bad credit. Which means that statistically (and I’m not talking about ANYONE in particular, but statistically) someone who NEEDS a co-signor is more likely to default on a loan.
So, what happens when your co-signor defaults? First, your credit gets dinged. If the default continues, you start to get collection calls. Eventually, as the creditor realizes the “primary” borrower is not going to pay, they turn to you, sometimes with lawsuit in hand.
If you get sued, what are your choices? Pay or fight. Fighting means you’ll want to make a cross claim against the person with whom you are co-indebted. So, the creditor winds up with a judgment against you. You wind up with a judgment against your co-signee. And you know how much that judgment is worth right? What’s worse, is if your co-signee files bankruptcy, you’re alone left holding the bag!
Ok, so what about the collateral? Well, that depends. First it depends on whether or not the collateral is titled, and whether or not your name also appears on the title. If your name does not appear on the title then you have to go through the courts to seek recovery of the property.
If your name IS on the title, then you have rights to the property outside of the courts. You probably don’t want to just go take it without telling anyone, but you do have certain rights of ownership. If the relationship is contentious, you can go to court to enforce your rights, essentially repossessing the car from the defaulting co-signor.
About the Author: William Grafton is a Maryland Bankruptcy Lawyer and Co-Owner of the Grafton Firm, LLC. He has written, lectured, and educated on credit related topics for nearly 10 years and is happy to be bringing his expertise to the Baltimore Metro area.