ó Time and time again, staff members at Advantage
Credit Counseling in Pittsburgh have seen parents and
grandparents suffer the consequences of financial ruin
all because they co-signed a loan for a child or
grandchild who either could not pay back the debt or
simply refused to.
the primary borrower defaults on payments, it reflects
negatively on the co-signer," said Heather Murray,
manager of education at Advantage Credit Counseling.
"If the primary borrower canít pay the loan, the
co-signer is responsible for taking on the debt."
and family members who co-sign loans to help someone
they care about obtain college education or buy cars or
other high-end consumer purchases may find out the hard
way that taking responsibility for someone elseís debt
not only risks damaging a relationship, but also their
own financial health.
chances of co-signers losing money or suffering a
spoiled relationship are high, according to a recent
report by CreditCards.com, based in Austin, Texas.
company found 38 percent of co-signers had to pay some
or all of the bill because the primary borrower did not;
28 percent experienced a drop in their credit score
because the other person paid late or not at all; and 26
percent said the experience created bad blood in their
relationship with the person they co-signed for.
survey, conducted by Princeton Survey Research
Associates International on behalf of CreditCards.com,
reported about one in six U.S. adults have cosigned a
loan or credit card for someone else. Auto loans
accounted for 51 percent of all co-signing. Personal
loans (24 percent), student loans (19 percent) and
credit cards (16 percent).
Herron, managing attorney for The Debt Doctors at
Quatrini Rafferty in Pittsburgh, said when it comes to
co-signing, the cases he sees that most often lead to
bankruptcy involve parents co-signing for student debt.
they sign, they think their children are responsible for
the debt and they are helping them go to school,"
Herron said. "But years after they graduate if the
child canít pay the debt or refuses to, then the
parents are on the hook for a very large debt.
said there is no remedy for eliminating student loan
debt, but one strategy he uses is to put the child into
a Chapter 13 bankruptcy to take the heat off parents in
the collection process. The law has a provision that
gives protection to co-signers if one of the borrowers
on a loan files for Chapter 13 bankruptcy.
creditors go after the co-signer because they have
better credit and more assets," Herron said.
Khalfani Cox, founder of AskTheMoneyCoach.com based in
Mountainside, N.J., said every study she has seen on the
topic confirms that more often than not, giving family
members or friends loans or co-signing for other peopleís
debt is a bad idea.
someone has to come to you for a loan or in need of a
co-signer, chances are the person already has, at best,
thin or no credit, and at worst, bad credit," Cox
considers it admirable that people ó out of love,
sympathy or concern for someone elseís plight ó want
to help out. But, she said, that doesnít make it a
smart financial move.
typically urges people not to do it.
isnít a hard and fast rule, of course," Cox said.
"There are certain times when it may be just fine
to help out someone by co-signing. But both people
should understand the terms and should recognize the
risk to their relationship if things donít go as
anticipated. For some people, they may decide that itís
just not worth it to risk a valued relationship."