I frequently meet with individuals who have co-signed a loan for a family member or friend to help that person establish credit. Many times it is a parent who has co-signed a loan or credit card for an adult child so the child can establish their credit. This happens a lot with student loans. Sometimes it is a friend or co-worker who asks you to co-sign a loan. While it can be a great way for the individual who needs to establish credit to get a loan, there can be many negative effects for the other individual.
When you co-sign a loan, the creditor can choose who they want to collect from if the loan is not paid. A creditor is going to go after the person who has the reliable job and income. This means that if you are co-signing a debt for someone who wants to establish credit, you are the one who the creditor is going to come after if they default. In addition, if the co-signor misses a payment or is making the payments late, your credit will take a hit.
Before you co-sign a loan, you need to make sure that the co-signor is going to be able to meet their obligations under the loan. You should be as careful in determining whether to co-sign a loan as the bank is in making the loan. If you are co-signing for a relative, consider how it will affect the relationship if they default on the loan. Before putting your name on the dotted line, decide if you have the ability to make the payments if the other person doesn't. In other words, don't put yourself at risk to help someone else out.
If a creditor is trying to collect on a debt that you co-signed for someone else, we may be able to help you through a bankruptcy. Contact Hampton Roads Legal Services at 320-2010 to schedule a free consultation today.