Co-signer on auto loan

by Joyce

In 2005 I co-signed,2007 my son lost his job the car was picked he was unable to pay.I'm retired on disability I received a call in Dec.2010 saying if I didn't start making payments they would garnish my income even from social security

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Feb 08, 2011
Son defaulted on car loan I cosigned for

Your situation is a great example of why cosigning a debt is risky business. When you do, you are as legally obligated to pay it as the person who took out the debt. Therefore, if that person defaults on the debt, the creditor (or debt collector) can look to the consigner for payment.

I assume you are being asked to pay the loan deficiency -- the difference between what the car sold for after it was repossessed and the total balance owed on the car at that point. Usually, the deficiency also includes the lender's costs of repossessing, storing and selling the car.

Before any of the money in your bank account can be taken to pay the deficiency, the creditor/collector must sue you. Assuming you lose the lawsuit, the creditor/collector can get the court's permission to seize the money in the account, take assets you may own, garnish your wages, if you are still earning an income, and so on. The good news is that the collector cannot take your Social Security $; the bad news is that if that $ is in your bank account and the collector/creditor seizes funds from that account, it may end up with some of your Social Security $ and you?ll have to initiate a process to prove that the $ was taken so you can get it back. One way to avoid this problem is to set up a new account that is just for your Social Security payments and to transfer into that new account any money from past payments.

If Social Security is your only source of income and you do not own any non-exempt assets (assets that creditors can take from you in order to collect on a debt), then you may be judgment-proof. That means that even if a creditor/collector sues you for the deficiency, it won't be able to collect it from you. If you're judgment-proof, you may want to send the creditor/collector a cease contact letter. Once the creditor/collector receives the letter, the federal Fair Debt Collection Practices Act says it must cease all contact with you other than to acknowledge the letter or to inform you of an action it intends to take to try to collect the debt. Read our advice here on using a cease and desist letter to stop a collection effort.

If you?re not judgment-proof, you may want to see if the creditor or collector will agree to let you pay what is owed over time or let you settle the debt for less than its full amount.

Another option if you own non-exempt assets that you don?t want to lose, is to file for bankruptcy. This will stop all collection efforts and give you time to figure out how to deal with the deficiency. It may also wipe out the deficiency.

I know I have given you a lot to think about so you may want to schedule an appointment with a consumer law attorney who helps consumers resolve debt collection problems or with a consumer bankruptcy attorney. Your initial appointment should be free. The attorney can evaluate your situation and advise you about your best course of action.

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