APR 12, 2014

How Do I Remove Myself As Co-signer on a Loan

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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Bill's Answer: Answered by Mark Cappel

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 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.



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Comments (60)

Chuck M.
Beverly Hills, CA  |  April 12, 2014
My wife and I are getting a mortgage and I co-signed for my sister for a car. She went to school and got several student loans. She pays everything on time and owes 12k left on the car and planed on paying it off with her income tax but only only received about 6300$ so she still owes a little over 5k. One stipulation was I get my name off that loan. We sign next week. What should I do for my name to come off. She needs to put in for another whole loan can she do it where she has so many student loans? I mean she makes great money she works for the IWK.
April 13, 2014
Whether she qualifies for a loan will depend on her debt-to-income ratio, her credit score, and credit history.

The only way to find out is for her to speak to some lenders and hear what they say. The lender will look at her credit report and compare the size of her monthly obligations (her mandatory student loan payments) and the monthly loan payment on a new loan against her income.
Heather W.
Orlando, FL  |  December 09, 2013
I co-signed on a $150k loan for my mother. At the time I thought I was "vouching" for her I hadn't a clue to what I was actually doing. Fast forward 10 years. Now I know. Now she has defaulted on the loan, went into bankruptcy and is letting her house go. This process began 2 years ago. I am not wealthy. I work for a non-profit and my husband for a warehouse. We do live debt free and work hard at it. Wondering what comes next in this process for us. I am really confused. Worrying a lot....I have received no paperwork at all from anyone.
December 10, 2013
There is no way to know for certain how the creditor will proceed. It is within its rights to try to collect from you, if you co-signed the loan. Unfortunately, if they contact you and you can't work out a payment plan, they could come after you for the debt remaining on the balance, after the house is sold.
Juanita R.
South Amboy, NJ  |  November 19, 2013
About 10 years ago I co-signed for my sister to undergo breast augmentation (I was 18 and in college) (she was starting a new jobs 2 months after). She was paying installments the first 6 months post-surgery but then stopped all together. We were both sued by the Dr. and although we didn't report to court and have never replied to collection agencies, they have continue suing us, and even 5 yrs ago took money out of my bank account without my acknowledgement (had to close it) never been able to open an account o my name. Today I'm married with kids, and we moved to a new house and began getting those letter again (Dont want our things garnished). She has 5 kids, no job, and refuses to pay. What can I do in this case, and if i decided to pay it can i sue her so she can pay me back somehow? How come they only harassing me and not her?
November 19, 2013
All co-signers have up to 100% liability for a debt. The creditor may pursue one or both co-signers for payment, and can legally demand one or the other to pay up to 100% of the balance due. Or, it can collect 40% from one and 60% from the other, or any combination it wants up to 100%. It may be unfair for the creditor to pursue you alone, but that is its right under law.

It appears the creditor has a judgment against you. Your first step is to consult with a lawyer who has consumer law experience to learn when the judgment was filed against you, when the judgment expires, and if your state allows the judgment-creditor to renew the judgment.

You ask what you can do. I see three options:
  • Negotiate a settlement with the creditor. Note that "settlement" here may mean a lump-sum or series of payments totaling less than the amount due to retire the debt. Then, as you suggest, try to collect the amount you paid the creditor from your sister.
  • File bankruptcy. Consult with a bankruptcy lawyer in your state to learn if you qualify for a chapter 7 or chapter 13 bankruptcy. If you qualify for a chapter 7, you can put this matter behind you for a relatively small cost in a short period of time. Doing so would remove your liability for this debt, leaving the other co-signer as the only person legally responsible for debt.
  • Continue to weave, dodge, and otherwise try to avoid the judgment-creditor until the judgment expires.

It is not fair you, who did not benefit from your sister's procedure, are receiving collection calls. But as mentioned, the the law allows a creditor to collect from any co-signer up to 100% of the amount due. Your story is a cautionary tale for anyone asked to co-sign a loan.

Kay K.
Richmond Hill, GA  |  November 14, 2013
A friend of mine bought a car in GA and her boyfriend co-signed for it . She paid all the costs and insurance and pays all the payments. Since then, they have broken up and he has filed bankruptcy. Now he is demanding the car, even though he never made a payment. Can he take her car.
November 14, 2013
There are written, spoken, and implied contracts. Here, I will guess the boyfriend was a co-signer so the girlfriend could qualify for the loan. I will further guess the parties agreed either by using words or by implication, the car was hers, which is why she's making the monthly loan payments, paying for the insurance, maintaining and using the vehicle.

Your friend should consult with a lawyer who has consumer law experience immediately. The lawyer will write a letter to the boyfriend explaining the spoken or implied contract between the parties trumps the title, and that if the boyfriend takes possession of the vehicle she will report it as stolen.
Althea C.
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.
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.
Muki L.
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?
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.
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.
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 securing 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.

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
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.
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?
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.
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?
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.
Chandrika P.
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.
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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