How Do I Remove Myself As Cosigner on a Loan

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READER QUESTION

I bought a motorcycle a year ago. Now the finance company won't honor a clause the dealer wrote into the loan. What can I do?

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Bills.com Resident Expert
Feb 03, 2012
HIGHLIGHTS
  • Contracts are written to lock co-signers in.
  • Refinancing is the best way to remove a co-signer.
  • Bankruptcy will also remove a co-signer's liability.
BILL'S ANSWER

In general, loan contracts are written to not allow a co-signer to withdraw from the contract at will. The best way for a co-signer to remove him or herself from a loan contract is to convince the other borrower(s) to refinance the contract. The most dramatic way for a co-signer to remove him or herself from a loan contract is to file for chapter 7 bankruptcy. This option has consequences, however.

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'm 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

Bills.com

Comments (47)


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Jennifer W.
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
There are four ways to remove oneself as a co-signer:
  1. Refinance the loan and not include a party in the refinance.
  2. Sell the property in question (if the loan is secured), which will extinguish the loan liability, unless there is deficiency balance.
  3. File for chapter 7 bankruptcy.
  4. 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
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
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.
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Jaryn L.
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
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.
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Steve S.
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
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.
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Sean M.
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
Your question is, unfortunately, a frequent one among Bills.com readers. I know of four ways to remove a co-signer from a loan:
  1. Refinance: Ask the other signer to refinance the loan in their name alone.
  2. Pay off the loan: Paying off the loan removes the liability for all co-signers.
  3. 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.
  4. 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
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
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
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
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.
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Heather J.
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
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.
Thanks for your feedback!

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