“ The cosigner is fully legally responsible for the entire debt, just as the main borrower is.”
IT is not uncommon for banks and other financial institutions to require a cosigner on a credit application. This is especially true when the applicant either has no prior credit history or the credit score is not high enough for other reasons to warrant an approval. This happens every single day- on loan applications to purchase a car, a home, personal property or even for a credit card.
So what does the applicant often do in order to get approved? He or she will usually call Mom or Dad, a brother, sister, friend or maybe even a co-worker asking them a “favor” by acting as a cosigner on the loan. I see this happen a lot with my Filipino clients. They are all so willing to help at any costs and if they have better credit than the applicant, they will not hesitate to sign on the dotted line. The question is: Do they really understand what they are signing? Listen to me! More often than not, this could be one of the biggest mistakes you can make in your life especially if the person you are cosigning for is likely to default on the obligation!
Think about this for a minute. Ask yourself this question before cosigning for anyone. Why do you think the bank or lender is asking you to guarantee the loan in the first place? Answer: Because they believe that the applicant has a high likelihood of not being able to pay, that’s why! That means in the eyes of the lender, they are a credit risk. So what do they do? Well, they don’t want to carry that risk themselves- so they want to pass it on to you!
The cosigner is fully legally responsible for the entire debt, just as the main borrower is. Let me put it bluntly: When you cosign, you are not just being “nice”. What you’re essentially doing is you’re saying to the lender: “I take full legal responsibility for this debt. You can come after me to collect as if I borrowed this money myself.” Question: Are you really prepared to do that?
As a bankruptcy attorney who has filed more than 6,000 bankruptcy cases over the years, I often feel bad for cosigners because in a lot of cases that I’ve handled, the only reason they are filing for bankruptcy is because the person they cosigned for defaulted on a debt, and now the creditor is after them. The cosigner is usually a well-meaning dad, mom, spouse, boyfriend, cousin or friend who simply wanted to help the borrower purchase a car, a home or get a loan to pay bills or whatever. The borrower usually promises the cosigner “not to worry about it” because they will “pay on time.”
Guess what? The sad reality is that many times, that’s not what happens. For whatever reason, the borrower doesn’t pay the bill so the house goes into foreclosure, the car gets repossessed or they stop paying on the loan so the cosigner gets sued by the creditor.
Remember that if the borrower defaults on the loan, that means legally, you also defaulted on the loan. It will affect your credit and the creditor will commence collection action against you and everything that you own. You can be sued and your wages can get garnished and your bank accounts levied.
Did you know that even the Bible admonishes us about this? In Proverbs 22:26-27, it says: “Don’t agree to guarantee another person’s debt or put security for someone else. If you can’t pay it, even your bed will be snatched from under you.” (NLT)
Trust me on this: Everyone usually enters into a cosigning relationship with great intentions. But I have seen how cosigning has destroyed relationships, marriages and sever family ties more times than I can remember, simply because no one understood the legal implications of cosigning when they took out the loan. So before you cosign for anyone, THINK TWICE before signing the legal document and if you don’t feel comfortable about the whole thing, do not be afraid to say NO or it may come back and make your life miserable later on.
If you need help with debt problems, I can help you figure out all your options. Call my office at 866-477-7772. I have offices in Glendale, Cerritos and Valencia. The initial consultation is FREE.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped thousands of clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1 (866) 477-7772.