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Co Signing – February 2016 Interview

Katherine:Hello everyone, we’re here today with Peter Daigle, attorney. He talked with us about bankruptcy matters. As promised last month, I said we’re going to have to talk about co-signing. This has been something that I’ve heard people talk about, but never really listened to any facts about it, so today we’re going to talk about co signing. What that means, what that looks like, what are the effects, what are the myths about that. Welcome back Peter, how are you?
Peter:Oh, great Katherine thanks for having me.
Katherine:Let’s just jump right into it, very basic what is co-signing? What’s the definition of that?
Peter:What happens is that let’s assume for a second that your son or daughter has come to you to get a car or get a mortgage on a home and they’ve asked you to co-sign the loan. You somewhat reluctantly agree but you do it. All of a sudden they stop making their payments down the road. What effect does it have on you?

If you’re out of bankruptcy it has all the effect of the bank or the lender can come after you for the deficiency. If they were to sell the car, then come after you. The opposite is if someone co-signs for you. For instance if someone were to co-sign your loan and you failed to make the payments they could come after your mother or father or whoever co-signed for you.

The effect of a bankruptcy is it eliminates the co-signer. In other words, if you were to co-sign for a loan for one of your children and they failed to make the payment and you file for bankruptcy you would no longer be responsible for that co-sign, they would be on their own. If your child bought that new car and couldn’t afford to make it and you had to file bankruptcy either as a result of that or something else then your child is on their own.

As it relates to your family member that would sign for you if you had to, needed the services of a family member to sign, the effect of a bankruptcy is it would have no effect on that other person. If your mother signs a loan for you, you file bankruptcy your mother’s still responsible for that loan. The only way you can stop the collection activity on someone co-signing for you is for you to file for what’s called a Chapter 13. In a Chapter 13 they can’t come after the co-signer as long as you’re in a Chapter 13 whether it be 3 years or 5 years, so that’s how it works.

Katherine:Okay, so is this something that you, without leading you, what’s your recommendation for people when it comes to co-signing?
Peter:Well, obviously people come with good intentions, right. They promise, your child says, I really need this car will you co-sign. Of course you want to help them whether or not it’s a student loan, or it’s a car loan, or a house mortgage. Be aware that there’s consequences down the road and if they don’t make those payments you are stuck with them. Just be aware of that. Unless you were to file for bankruptcy then you could knock it out. Just be aware of who you co-sign for, who you ask to co-sign because there are consequences down the road for it.
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Katherine:Anything can happen, anything can happen even if like you said good intentions. I remember some years ago there was an associated of mine, someone I called a friend at the time, that asked me to co-sign for them and they didn’t even have a job. I was much younger. It end up not going through, or whatever something happened it’s just divine intervention I’m not sure.

I told my mom about the situation and my mom was like, you never co-sign for anybody, anything. Not really sure, thinking my mom was just being mean. You don’t want to help people. Just not really understanding what that could mean for me. Now I co-signed for this person, let’s say I did co-sign for this person successfully it went through, and they missed the payment. You’re saying I would be responsible to make those payments or it would impact my credit?

Peter:Yes, it will affect your credit and if they would default completely, let’s say you co-sign for a car loan and they end up repossessing the car and they sold at an auction, whatever the difference would be you would be responsible for. That’s the effect of a co-signer.
Katherine:Well, I know we’re going downhill on the bad stuff. What about if this person makes the payments. Is there any time during the co-sign process that I can come off of the loan or do I have to wait for them to pay it out?
Peter:No, unfortunately when the bank made the loan the only reason why they made the loan is because you co-signed, and so the bank is not going to let you off the hook. Because they don’t believe that the person whose loan it’s in could pay it back and that’s why they required a co-signer. Because either credit wasn’t very good or they had no credit and so the bank made a business decision to require you. They’re not going to let you off the hook no matter what.
Katherine:Okay, so let’s say this person pays it off successfully does it give me a boost in my credit?
Peter:Well, if they’re paying, yes. If they’re paying it successfully it’s not going to hurt your credit. It’s not going to help it, it’s just not going to hurt it. It’s not going to be a good mark it’s going to be no black mark is what it would be.
Katherine:It’s really, what I’m hearing you say, that me as a co-signer there is no benefit in me making …
Peter:Unless it’s one of your children or someone who’s already close to you that you believe is going to make it and you’re trying to help them. You really have to take it on an individual thing. Just a friend, or an associate, or acquaintance there’s no way you should, anybody should co-sign for anybody. Because it starts off with good intention but it doesn’t always end up that way.
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Katherine:Sure. Well this has been really, really, good as always. Short, sweet, simple, but it makes it make sense and I have to say my mom was absolutely right on this one.
Peter:She was.
Katherine:You know we always think when we’re younger oh you’re old fashion, you’re being mean. You don’t want me to help people. I don’t know if it was good or bad. That’s just something you said, it wasn’t good but at the time I didn’t know if it was good or bad. This is my friend. Thinking of it logically she didn’t have a job, it was already going to be a bad situation. I wasn’t thinking about any of those things I wanted to help somebody but it just didn’t happen to work out. Fortunate for me I see from what you’re saying. Then mom I have to call her today and tell her she was right about that.
Peter:She was right. Mom is always right.
Katherine:They are always right. Sometimes you just want to be smarter than they are, but we’re not. She would say, “I wouldn’t sign for my own mom for a slice a bread. You don’t do it.” She was serious about it. I went, wow. I don’t care how many times I’ve approached her, mom you could co-sign for me, make it sound like it’s a good idea but there’s not even anything I could sell to her after talking to you, saying this could be a good mark on your credit. The best she can get is no negative mark.
Peter:Exactly no negative mark, right.
Katherine:There’s no incentive, instant. I made up word incentive.
Peter:There you go.
Katherine:Incentive in doing that. You have to come in and look out for yourself. You do because you have to take care of your family so if you do something for someone, like you said Peter, that’s not family and you hinder your ability to provide for your family and credit is one of those ways that we do this. Whether it’s purchasing a home or a car for our family and we do this for someone and we’re just stuck. You can be upset at this person but you’re just stuck.

We have to really think about these things. Peter, it’s a tough thing because this is emotional as you’re talking I was feeling emotional like, oh my gosh he doesn’t want me to help people, but it’s not that. If you don’t take care of yourself first you’re no good for anybody else. That’s that and the end of it.

Peter:Exactly, yep.
Katherine:This is a great conversation as always. Tell people how to get in touch with you. Also tell them how to get a copy of your book.
Peter:Okay, so our phone number is 508-771-7444 and give us a call, or go on Daiglelawoffice.com and you can request a copy of the book, or send us an inquiry, or just email a question and we’ll get right back to you.
Katherine:Absolutely, and get a free copy of your book, “The Truth About Bankruptcy in Massachusetts” it’s some great information. I know that you market for Massachusetts, so we have to check in our particular state what things do apply for us. There’s a lot of great information that seems very relevant even for myself here in North Carolina. Peter, I’m grateful for the book, I’m grateful for your knowledge that you share with us each month. Thank you so much.
Peter:Okay, Kathryn thank you so much we’ll talk to you soon.
Katherine:Until next time.
Peter:Okay, bye-bye.
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