Hi molly,
The worst thing that can happen to your sister if she just ignores the
loan is that she can be sued for whatever amount the creditor cannot
recover from her daughter, and be legally compelled to pay.
Additionally, the defaulted loan will remain on her credit report for
up to 7 years, and if a judgement is entered against her, that may
remain for 7 years.
"How long does adverse credits appear on the report ?
The public record information and adverse credit information are
reported as follows:
Bankruptcy ------------------------------- 10 years
Tax Liens ------------------------------- 7 years
Judgment ------------------------------- 7 years
Foreclosure ------------------------------- 7 years
Notice of Default ------------------------------- 7 years
Collection ------------------------------- 7 years
Repossession ------------------------------- 7 years"
Know Your Credit Report
http://www.1acs.com/Question1.asp
When you co-sign for a loan, you are, under the contract, accepting
responsibility for the full amount of the loan in the event the
primary borrower defaults. You are guaranteeing that if the primary
borrower does not pay, you will.
"In some cases, a lender may require a co-signer (in legal terms, a
guarantor), someone who agrees to assume responsibility for repaying
the loan if the borrower fail to make the required payments. If you
are ever asked to co-sign a loan for a friend or relative, you should
carefully consider the responsibilities you will be assuming if you
agree to do so. In many states, a lender may seek repayment in full
from a co-signer upon a single late payment from the original
borrower. You might also want to consider that the lender probably
wouldn't require a co-signer if the borrower's credit record was a
good one, so you may want to think long and hard before taking on the
risk involved in co-signing a loan."
Personal Loans
http://www.uslaw.com/library/article/mzpersonalloans.html?area_id=11
"Recent studies show that when co-signing is required, three out of
four co-signers are required to repay the loan. Therefore, it is
essential that you understand the risks and dangers of co-signing and
be able to manage this responsibility from the time of the signing
until the final repayment of the loan.
Co-signing is a wolf in sheep’s clothing. Once you co-sign a loan, you
become 100% liable for the entire loan, which means that if anything
is owed to the lender that has not been paid by the borrower
(principal, fees, interest), you must pay it.
The co-signer is really a co-borrower with all the responsibilities
involved in borrowing, but instead of receiving the loan, he receives
nothing. And even if the primary borrower doesn’t default on the loan,
the co-signer carries the agreement on his credit just as if he were
the primary borrower. This makes it more difficult to get another
loan. Co-signing can sting even if the borrower fulfills his
obligations.
When a borrower defaults on a loan, the co-signer is responsible for
the borrower’s payments and any other charges. If the co-signer is
unable to meet the requirements now imposed upon him, his credit is
severely damaged."
Co-signing: A Wolf In Sheep's Clothing
http://www.communitybankers.org/cmn_tips_cosigning.htm
In the case of an auto re-possession, the creditor may be able to
recover some of what is owed by selling or auctioning the car. You
sister should check with the creditor to see if this has been done,
and what balance, if any, remains to be paid. Her daughter needs to
make arrangements to pay the remaining balance, otherwise, your sister
is still legally responsible.
With respect to filing for bankruptcy: Depending upon the state where
your sister resides, her husband's disabiltiy check may be
"unreachable" by any court. This varies from state to state.
Florida, for instance, offers the following protections:
"WAGE ACCOUNTS. Florida Statute Section 222.11 provides that the wages
of a "head of a family" shall not be subject to attachment or
garnishment. This means that such wages cannot be reached by a
creditor, except for alimony and child support payments. The exemption
extends to any bank account maintained by the debtor when the funds in
the account can be traced to and identified as wages."
[...]
"DISABILITY BENEFITS. Under Florida Statute Section 222.18, disability
income benefits received under any policy or contract of life, health,
accident or other insurance is exempt from the claims of creditors."
Asset Protection News
http://www.assetprotectionnews.com/ii-2-fr.html
"Garnishment
Zuckerman v. Hofrichter & Quiat, P.A.
19 Fla. L. Wkly. S634 (Fla. 1994)
A lump sum payment received in settlement of a claim under a
disability insurance policy is exempt from garnishment. Any disability
income benefits, in whatever form, paid under any policy or contract
of life, health, accident or other insurance, are exempt from
garnishment, unless the policy or contract is effected for the benefit
of creditors."
Case Law Update
http://www.caselawupdate.com/jan95.html
Also depending upon her state, if your sister's husband did not also
co-sign the loan and she chooses to file for personal bankruptcy, his
income should remain unaffected.
"Filing together eliminates the separate debts of you and your spouse
and all the jointly-held marital debts. Filing alone leaves the
non-bankrupt spouse still liable for his or her share of joint debts,
but wipes out the spouse's separate debts and his/her share of the
joint debts.
If you are legally separated, have divided your property, and taken
care of all the financial considerations, your best option may be to
have your spouse go it alone. If all the debts were incurred before
you were married, there is no point in having you both file.
Community property) and common law (also called "equitable
distribution") are the two types of martial property ownership. The
vast majority of states apply the equitable distribution rules; nine
states apply the community property rules. If you live in a common law
property state, your spouse's bankrupt estate will include his/her
separate property and half of the jointly-held marital property. The
non-bankrupt spouse will not have to worry about the effects of the
bankruptcy on his or her separate property."
MY SPOUSE IS DECLARING BANKRUPTCY. SHOULD HE FILE ALONE OR SHOULD WE
FILE TOGETHER?
http://bankruptcy-law.freeadvice.com/consumer_bankruptcy/spouse_bankruptcy.htm
"Are my spouse's assets included in my bankruptcy?
No. Only assets owned by the bankrupt are included in the bankruptcy.
If assets are jointly owned with a spouse, then the bankrupt's portion
may have to be sold and distributed to the creditors. It is important
to make the Trustee aware of joint assets so that each case can be
reviewed individually."
KPMG - Common Questions About Bankruptcy
http://www.personalbankruptcy.com/pb/questions.html
Of course, this is just general information, and your sister would be
best advised to contact an attorney in her area. She can also find
out about her credit rights and responsibilities free of charge by
contacting her local Consumer Credit Counseling agency:
Consumer Credit Counseling Services
http://www.cccsintl.org/
You sister's best bet, in the event that her daughter cannot make
suitable arrangements with her creditor, is to make the arrangements
herself. Ignoring the debt could have disastrous consequences, and
affect her future ability to get credit.
I hope you found this helpful. If any part of my answer is unclear,
please don't hesitate to ask for clarification. I'll be glad to
assist you further.
--Missy
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