Bill's Answer:
Bills.com Resident Expert
In general, loan contracts are written to not allow a co-signer to withdraw from the contract at will. There are no, “We are not friends anymore so I want to be released from my co-signer liability” clauses in any loan contract I have seen. If the primary borrower stops making payments, the co-signer has 100% liability for the unpaid debt. There are four ways to relieve a co-signer from a loan’s liability:
- Refinance the loan in one name only
- Sell the item secured by the loan and use the proceeds from the sale to retire the loan
- File for chapter 7 bankruptcy
- If your signature was forged on the loan application, file a lawsuit against the borrower and ask the court for relief
If the loan in question is a student loan, some lenders allow for the release of the co-signer when basic requirements are fulfilled. See the Bills.com article Co-signing a Student Loan to learn more about co-signing a student loan.
The Facts Here
To paraphrase your facts, a motorcycle dealer in Florida wrote a contract to finance a motorcycle. You are a co-signer. All payments are made in a timely manner, but you want out of the deal because of the impact on your credit rating or debt-to-income ratio. The Florida dealer wrote terms that, one year later, the Nevada finance company refuses to honor.
It would be unusual for a lender to write a clause in a loan agreement that would allow a co-signer to remove him or herself from an agreement, and I am not surprised that the finance company would balk at this. Under normal circumstances, the only way you can extract yourself from this type of contract is for the other cosigner to refinance and put him or herself as the borrower. However, the Florida dealer wrote this clause into the contract, both parties signed it, and the Nevada finance company never raised this clause as an issue over the last year.
I recommend you and the cosigner to speak with an attorney in Florida with experience in consumer law to determine what your rights are under Florida law. My guess is that the Florida attorney will use a legal doctrine called “laches” to ask a Florida court to enforce the clause.
I hope this information helps you Find. Learn & Save.
Best,
Bill
Althea C.
Shalimar, FL | March 29, 2012
Shalimar, FL | March 29, 2012
Hi there, I got an experience of being a co-signer for my sister's student loan 7 years ago. I'm an active military member, Once i get my PCS here in Florida, the American Education Services sent me a letter of my sister is delinquency in payment. So, Because she is my sister and i trust her, i called her and told her about the notice that i got and she told me that, she already made a payment,just disregard the letter i got. And last July 2011 i got deployed in Iraq and once i got back January 2012, i got this notice that i need to pay the full amount left in the loan because they can't contact my sister. And since I cosigned that loan I'm aware of the responsibility. I call the Loan Agency right away and told to me that if i pay the full amount it will not the hurt my credit score. So, I know i don't have a choice, the next day i paid it. Not a credit card but in my own cash. I don't use credit card just to let you know. I always make advance payment in all my bills. And now the hard part, I just got my new vehicle and when i need to get a loan to my own bank, They denied me because a have a full credit score and did reflect the delinquency payment of that student loan i co-signed. Now i wanna know if there's anything i can do to fix and erase that bad credit history in my name? My point is, during the time they are sending me the notice of delinquent payment, I'm not aware of that because I'm deployed! But once i got back in florida and saw that letter, right away i call them and paid that loan. Is there's any legal steps i can do to fix it? Just wanna know because it's really hurt my credit score an the fact that it's unfair in my side because I'm not aware of those notices that they are sending me. Hope to get a reply. Highly appreciated in advance.
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Bills.com
March 29, 2012
March 29, 2012
You described the consequences a co-signer faces when the primary borrower defaults on a loan. Not only does the co-signer suffer harm to their credit score, but also has liability to repay the balance due if the primary stops paying altogether.
You mentioned being an active military service member. Under the Servicemembers Civil Relief Act (SCRA), a federal law, special protections exist for those on active duty or who recently completed active duty regarding their financial obligations. I confess I am not well-versed in the SCRA, but based on my limited understanding of the act, creditors are not barred from reporting delinquent debts of active duty members to the credit reporting agencies (the credit bureaus). Consult with your local judge advocate general to learn if the SCRA applies to any part of your issue.
If not, consider writing a letter to the lender explaining your situation, and ask that as a matter of good will, it remove the derogatory mark from your credit file.
You mentioned being an active military service member. Under the Servicemembers Civil Relief Act (SCRA), a federal law, special protections exist for those on active duty or who recently completed active duty regarding their financial obligations. I confess I am not well-versed in the SCRA, but based on my limited understanding of the act, creditors are not barred from reporting delinquent debts of active duty members to the credit reporting agencies (the credit bureaus). Consult with your local judge advocate general to learn if the SCRA applies to any part of your issue.
If not, consider writing a letter to the lender explaining your situation, and ask that as a matter of good will, it remove the derogatory mark from your credit file.
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Muki L.
San Francisco, CA | February 14, 2012
San Francisco, CA | February 14, 2012
HI, About 9 years ago, I signed for a 30 year mortgage with my brother and my Mom. At the time, the bank we signed with was Country Wide and through them they decided not to use my credit because it wasn't strong enough. So in other words, the bank statements that paid the mortgage did not have my name on them. Since then, I got married, moved out and bought a home with my wife (lived here for 5 years). When I purchased my home with my wife, the bank did not have any records of the house with my brother. Fast forward, Bank of America bought Country wide and assumed their loans. My signature was on the document so they added my name to their loan documents without notification. I found out about the change when I completed a refinance. So I've read the four different ways to remove myself. Is there any other way? If I file Chapter 7 would I lose my home I live in? If i involve a lawyer, would I get a different result?
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Bills.com
February 14, 2012
February 14, 2012
You should speak with a lawyer. You say that you signed for the loan, so you seem to have been responsible for the whole time, even though your name was not on the monthly statements. Still, it may be the case that you were not part of the loan or that BofA did something improper in adding you to the loan.
If you are responsible, speak with a bankruptcy attorney, to see if filing for bankruptcy could help you remove your BofA loan debt and what the effects would be on your current home and assets.
If you are responsible, speak with a bankruptcy attorney, to see if filing for bankruptcy could help you remove your BofA loan debt and what the effects would be on your current home and assets.
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Jennifer W.
San Francisco, CA | February 03, 2012
San Francisco, CA | February 03, 2012
I am the co-signer on a student loan. A few years ago a friend asked me to co-sign for his student loan, however since I was on the west coast and he was on the east coast at the time he forged my signature on the student loan. He was since kicked out of school and now refuses to make any payments on the loan or to reimburse me for any of the payments that I make to keep the account in good status. Unfortunately I have been reported twice for the loan being too delinquent, past 60 days, however the only reason I was reported is that I never received any phone call notification that the loan was that far past due and I was going to be reported to the credit bureau. The loan company does not send me any statements or documents of the loan, which I have asked for many times. I wanted to see how I can get the original papers for the loan and request statements and receipts of payments, and any advice on ways I can go about getting myself off of this loan! Thanks for your help.
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Bills.com
February 03, 2012
February 03, 2012
There are four ways to remove oneself as a co-signer:
- Refinance the loan and not include a party in the refinance.
- Sell the property in question (if the loan is secured), which will extinguish the loan liability, unless there is deficiency balance.
- File for chapter 7 bankruptcy.
- If the loan is for a home, allow a strategic default. However, all parties on the loan will be responsible for any deficiency balance.
Student loans are different from secured loans because, obviously, there is no property that secures the loan. Student loans are also different from other consumer loans in that they cannot be discharged in a bankruptcy, unless there is a hardship.
In your case, an act of fraud attributed liability to you for the loan. It would be unfair for a court to enforce a forged contract. You need to create a affidavit that states you did not sign the loan contract. See the Dept. of Education false certification discharge discussion. See the Sallie Mae Student loan discharge or cancellation page to learn how to contact Sallie Mae's claims department.
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Kit N.
Troutville, VA | January 07, 2012
Troutville, VA | January 07, 2012
When I was 17 I had a co-signer help me get a car from a dealership. He signed stuff but I paid for everything, down payment and insurance and all of that, for exactly a year and a half out of a 3-year payment plan. I lost my job so I couldn't continue to pay for the car. My brother picked up paying for the car for exactly the past year's time, and at the time that he started paying for it, said it was cool if I wanted the car back in the future, he just wanted to use it right now. I brought it up again recently and he was still cool with me having the car back.
Now, when I spoke to the original co-signer, a month or two ago he was fine with everything and kept saying we would get together and talk about it. Now when I'm trying to get together with him so we can really discuss and plan things and work it all out so that I can either a) have the car back and pick up paying for it again, or b) have back the $6,000 (out of 10,000 total) that I have already paid (car only, not insurance) - he (the co-signer) is saying I have no rights, I'm entitled to nothing, etc. etc.
So my question is, what are my rights, and what am I entitled to, and so forth? I'd like to get this all worked out as peacefully as possible, but if I must I will use legal force (suing, or something).
His name is on the title, but I had paid for everything up until the year-and-a-half mark. He had to pay for the car for a whopping two months before my brother picked up payments on the car. Now that it's January, it has been a year that my brother has had the car now.
I live in the state of Virginia, if that helps for a detailed answer :P
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Bills.com
January 09, 2012
January 09, 2012
I will assume the brother you mentioned is the co-signer. The co-signer bases his theory of complete and total ownership of the vehicle on his name appearing on the title. That gives him the right to possess and sell the vehicle, as far as the state is concerned. You base your claim to own a partial interest in the vehicle on your making payments for half the life of the loan. He has a legal claim to the vehicle, and you have an equitable claim.
It would be unfair for the co-signer to have complete ownership of a vehicle he paid only 50% for. Assuming you can prove to a court you made 18 out of 36 payments, then a court will agree you own 50% interest in the vehicle.
A lawsuit is expensive. Mediation is cheaper. Explain to the co-signer that you would like to settle this dispute with a mediator. If the co-signer does not accept this alternative, then you two choices: Let it go, or file a lawsuit.
It would be unfair for the co-signer to have complete ownership of a vehicle he paid only 50% for. Assuming you can prove to a court you made 18 out of 36 payments, then a court will agree you own 50% interest in the vehicle.
A lawsuit is expensive. Mediation is cheaper. Explain to the co-signer that you would like to settle this dispute with a mediator. If the co-signer does not accept this alternative, then you two choices: Let it go, or file a lawsuit.
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Jaryn L.
Kaneohe, HI | October 15, 2011
Kaneohe, HI | October 15, 2011
About 2 days ago I cosigned for a friend for a used car from a used car lot. I was wondering if there is a 3-day time line to resign as the cosigner and return the car to the used car lot. Is this possible?
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Bills.com
October 15, 2011
October 15, 2011
I am not aware of any state law requiring an X-day cooling off period when buying a car, or a cooling off period for loan co-signers.
You asked about returning the car. Certainly, the dealer will buy the car back at a discounted price. Make the dealer an offer.
You asked about returning the car. Certainly, the dealer will buy the car back at a discounted price. Make the dealer an offer.
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Steve S.
Chicago Ridge, IL | October 10, 2011
Chicago Ridge, IL | October 10, 2011
I believe my father has put me down as a co-signer on my sisters student loans. I told him I did not want to cosign. Is there any way I can check to see if he has or not?
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Bills.com
October 10, 2011
October 10, 2011
The least reliable means to determine if you are co-signer is to check your credit report. If the loan is not on your credit report, however, that does not mean you are in the free and clear. The most reliable means to learn if you are a co-signer is to ask the student to see all of his or her loan contracts.
If your signature was forged on the loan contracts, consult with a lawyer who has consumer law experience. You may be able to release yourself from liability.
If your signature was forged on the loan contracts, consult with a lawyer who has consumer law experience. You may be able to release yourself from liability.
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Chandrika P.
Sunnyvale, CA | March 18, 2012
Sunnyvale, CA | March 18, 2012
I co-signed student loan for my son. He is not working and i have not enough money. I want to release my responsibility from student loan. Right now he is not living with us. Please give me a suggestion.
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Bills.com
March 19, 2012
March 19, 2012
Unfortunately, there is no good solution for your situation. Student loan co-signers may be removed in some cases, but it requires the student to meet certain conditions, such as demonstrating an ability to pay the loan and there being a history of timely payments. If collection efforts against you take place, you should seek the counsel of a bankruptcy attorney. Even if you can't discharge the obligation to pay the debt, a bankruptcy may allow you to work out a payment that you can afford.
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Sean M.
Fort Benning, GA | September 29, 2011
Fort Benning, GA | September 29, 2011
My spouse co-signed on a student loan for a friend 3 years ago. She recently applied for a student loan herself but was denied because of delinquent payments on the friend's student loan. She is a stay at home mom and make no income. Is there away she can remove herself from the friend's student loan or is there any legal advice you can give?
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Bills.com
September 29, 2011
September 29, 2011
Your question is, unfortunately, a frequent one among Bills.com readers. I know of four ways to remove a co-signer from a loan:
- Refinance: Ask the other signer to refinance the loan in their name alone.
- Pay off the loan: Paying off the loan removes the liability for all co-signers.
- File for chapter 7 bankruptcy: A successful bankruptcy filing resulting in a discharge of this debt will remove the co-signer's liability for the debt.
- Fraudulent signature: If the co-signer never signed the loan document, or signed the document under duress, then a court making that finding may order the creditor to remove all references to the debt in the victim's credit report, and cease any collection efforts.
Readers, I welcome your thoughts and suggestions for other successful tactics to remove a co-signer's liability for a loan.
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Alisha Z.
Broken Arrow, OK | September 16, 2011
Broken Arrow, OK | September 16, 2011
My situation is similar to most of these. My fiance's ex wife had three student loans taken out while they were married. He cosigned two of them. They total some $150,000.00. This debt was never addressed in their divorce decree, she has been paying on them for the past four years. Well recently she's threatened to file bankruptcy or take him to court to try and make him pay on these loans since she can no longer afford to do so. I realize that she can't make him pay anything, only the creditors can. And since these are school loans, bankruptcy won't wipe the debt away. Obviously we don't want to pay on her school loans, something he (and apparently she) never benefited from. Will this be something that will plague him for the rest of his life if she refuses to take care of them? OR is there a way he can perhaps negotiate with the creditors to pay a portion and have his name taken off the loan? How will this effect me when we get married?
Appreciate the help.
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Bills.com
September 16, 2011
September 16, 2011
Student loans are unusual for several reasons. In some states, when a person with student loans divorces, state law severs any liability the ex-spouse has for the student loans. Unfortunately, I do not know if your state (Oklahoma, presumably) is one of these states. Consult with an Oklahoma lawyer who has experience in family law where student loans are involved. Shop around for family lawyers until you find one who has litigated the student loan issue before. I realize my answer is not what you may have hoped, but I would rather give you a sincere non-answer than guess on a critical issue with expensive consequences.
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Nick T.
Southfield, MI | September 14, 2011
Southfield, MI | September 14, 2011
Hello, I co-signed for a vehicle for my boyfriend less than 30 days ago and we broke up and now is refusing to pay on the car. Please let me know if there is any option I have knowing that it is less than 30 days since signing
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Bills.com
September 14, 2011
September 14, 2011
I am not aware of any 30-day exemption or exception to allow a co-signatory on a vehicle loan to exit from the contract. To the contrary, loan contracts are specifically designed to not allow co-signatories to come and go as they please.
Consult with a lawyer in your state who has consumer law experience to learn what rights you have regarding your situation.
Consult with a lawyer in your state who has consumer law experience to learn what rights you have regarding your situation.
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Heather J.
Lemon Grove, CA | August 15, 2011
Lemon Grove, CA | August 15, 2011
Help? I co-signed on a car, with the reasoning that after 6 months or so the person I was co-signing for would be able to build up credit and then refinance on his own. Problem is I thought I co-signed but after everything went through they put me as the primary. Is he still able to refinance on his own, like originally planned?
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Bills.com
August 15, 2011
August 15, 2011
If the co-signer on the vehicle has a consistent income history, a high-enough credit score, and the vehicle is in good condition, then he or she should be able to refinance the vehicle is his or her name alone. Assuming the above, your being the primary today will not prevent a refinance.
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