I'm cosigner .. Friend thinking of bankruptcy .. Pls help

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newboggler
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I'm cosigner .. Friend thinking of bankruptcy .. Pls help

Post by newboggler »

Hi all...
I am cosigner on friends auto loan (current balance about 15k)
Unfortunately friend got into some trouble and is thinking of filing bankruptcy in about 6 months

I know cosigning is big no-no for bogleheads but I did this before joining here.. My lack of financial knowledge...my misfortune :oops:

Friend is thinking of paying this auto loan off before filing bankruptcy but I m not sure whether I can trust him now or not!!

I am worried and sleepless !

Questions-
1. We have at least 5-6 months before he files, if he files... Can I do something to make my credit immune from his bankruptcy?
2. Am thinking of giving some money to friend to pay auto loan before bankruptcy! Is it good idea?
3. If I/we pay off the auto loan in full before he files bankruptcy, and he files bankruptcy later on...does it still affects my credit history?
4. Should I hire lawyer or contact creditor to understand options?

I am worried about his bankruptcy showing on my credit... I want to buy house in 3-4 years !

In future...I swear I'll never cosign. :(

Pls help fellas!
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fredflinstone
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by fredflinstone »

I'm not a lawyer, but I am going to take a wild guess: if the loan is paid off before your friend files bankruptcy, you should be OK. If not, you're screwed.
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ResearchMed
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by ResearchMed »

Among several possibilities DO NOT - repeat *NOT* - "giv[e] some money to friend to pay auto loan before bankruptcy". :shock: :shock:
Who knows how he'll spend it!

The only thing to think about along these lines (and this is NOT a recommendation) would be to take that money directly to the lender and pay off that loan yourself.

My understanding (and there are accountants and lawyers on the Forum) is that if the loan is paid off before any bankruptcy filing, and that is the only place you've co-signed, it will be a non-issue for you.
But check - I am NOT an attorney.

Good luck. This is messy, and likely to get worse before it gets better.
At least it's 15k, and not something like 200...

RM
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bottlecap
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by bottlecap »

He will probably reaffirm the auto loan and keep the car anyway, right? If he doesn't, the trustee will sell the car and the loan amount will be reduced accordingly. It's been a while since I've dealt with such issues, but it seems like your exposure is little to nothing if your friend keeps the vehicle (and continues paying, of course) and a good bit less than $15,000 if he doesn't.

Do not give him any more money for Heaven's sake. He's probably pretty desperate right now and there's no telling whether he would pay the car off or not.

You may want to speak with a bankruptcy attorney to ease your mind.

JT
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Kenkat
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Kenkat »

Can you pay off the balance of the loan and take possession of the car - via a drawn up contract of sale of course? I know you probably don't want a car but at least it would protect your credit and you could sell the car at some point to recover some or all of the money involved.
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Raymond
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Raymond »

Sir, I feel for you :(

We can only hope your friend is a stand-up guy and pays off the loan before filing for bankruptcy (if he ever does).

As mentioned above, you may wish to consult an attorney who specializes in bankruptcy (not the guy who did your will, or defended your traffic ticket, or your cousin Vinny in law school).

And if you cosign another loan in your life, we will hunt you down and flog you with wet noodles :P
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livesoft
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by livesoft »

I can help you if you give me $15K.
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sscritic
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by sscritic »

kenschmidt wrote:Can you pay off the balance of the loan and take possession of the car - via a drawn up contract of sale of course? I know you probably don't want a car but at least it would protect your credit and you could sell the car at some point to recover some or all of the money involved.
Or lease it to his friend. :)
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newboggler
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by newboggler »

livesoft wrote:I can help you if you give me $15K.
I wish I had 30k in hand... 15 for you and 15 for my friend :| :!:

I am thinking of paying off auto loan and getting verbal agreement with friend to pay me back like a loan... At least it will save my credit!

Is my credit still at risk if he files bankruptcy after the auto loan is paid off?

Thx for your replies!!
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bottlecap
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by bottlecap »

newboggler wrote:I am thinking of paying off auto loan and getting verbal agreement with friend to pay me back like a loan... At least it will save my credit!

Is my credit still at risk if he files bankruptcy after the auto loan is paid off?
I can't see how your credit would be affected if your friend files bankruptcy, so long as you hold up your obligation on the note.

Before paying off the vehicle, you really need to speak to an attorney. Paying off the loan could give your friend eligibility problems if he does want file bankruptcy or, in the worst case, might give the trustee an unencumbered asset he can sell. I doubt your friend will be able to afford a payment on a second car and to make payments on a vehicle the bankruptcy trustee sold to pay off his other creditors.

Before you put any more time, money or effort into this, you should speak to an attorney who specializes in bankruptcy. You are talking about a couple of hundred bucks to make sure you don't make this situation worse.

JT
Gnirk
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Gnirk »

bottlecap wrote:
Before paying off the vehicle, you really need to speak to an attorney. Paying off the loan could give your friend eligibility problems if he does want file bankruptcy or, in the worst case, might give the trustee an unencumbered asset he can sell. I doubt your friend will be able to afford a payment on a second car and to make payments on a vehicle the bankruptcy trustee sold to pay off his other creditors.

Before you put any more time, money or effort into this, you should speak to an attorney who specializes in bankruptcy. You are talking about a couple of hundred bucks to make sure you don't make this situation worse.

JT
I read that in our state the person declaring bankruptcy can have less than $8,000 vehicle equity. If the vehicle is worth much more than that, and is paid off, the bankruptcy court could sell it to pay off other debts. Just my understanding, I'm not an attorney.
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bottlecap
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by bottlecap »

Gnirk wrote:
bottlecap wrote:
Before paying off the vehicle, you really need to speak to an attorney. Paying off the loan could give your friend eligibility problems if he does want file bankruptcy or, in the worst case, might give the trustee an unencumbered asset he can sell. I doubt your friend will be able to afford a payment on a second car and to make payments on a vehicle the bankruptcy trustee sold to pay off his other creditors.

Before you put any more time, money or effort into this, you should speak to an attorney who specializes in bankruptcy. You are talking about a couple of hundred bucks to make sure you don't make this situation worse.

JT
I read that in our state the person declaring bankruptcy can have less than $8,000 vehicle equity. If the vehicle is worth much more than that, and is paid off, the bankruptcy court could sell it to pay off other debts. Just my understanding, I'm not an attorney.
Yeah, this is probably an $8,000 exemption for an automobile.

JT
bluemarlin08
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by bluemarlin08 »

You won't become liable until the lender comes to you, lots can happen before that happens. Once was in a similar situation, the other party renegotiated the deal during his bankruptcy and he ended up paying it off. Never hit my records.
John3754
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by John3754 »

newboggler wrote:I am thinking of paying off auto loan and getting verbal agreement with friend to pay me back like a loan...
Good luck with that one...my guess is that you'd never see that money again.
DualIncomeNoDebt
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by DualIncomeNoDebt »

newboggler wrote:
livesoft wrote:I am thinking of paying off auto loan and getting verbal agreement with friend to pay me back like a loan... At least it will save my credit!

Is my credit still at risk if he files bankruptcy after the auto loan is paid off?
Slow down. Way down. You are making all types of plans and contingencies, yet you have zero information on which to make them. You don't even know if your friend will file for bankruptcy. And if he does, the auto loan may get satisfied in the bankruptcy, either by the friend paying it off, the car being sold, etc. This could happen if this person needs the vehicle for work.

Don't rush and throw away money. You need to see how this plays out. And then you need to see if he files under Chapter 7, 11, or 13, and then you will need to review the bankruptcy court orders to see the creditors and debtors -- if it even goes that far. If under Chapter 13, there generally is a codebtor stay -- i.e., you could be protected if his/her debts get worked out in court, with no ability by the creditors to come after you, at least while the stay is in place.

Bottom line: you don't know enough, not yet, to make any decisions.
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Watty
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Watty »

What is the car worth now? That may make a big difference in how to approach it.


One concern that I would have is that your friend keep the car insured.
BigTom
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by BigTom »

I would think your credit would be fine . I think that you will be liable for the loan and it won't be erased from the bankruptcy . I think the lender will come after you for the money that's it .

That's just what I think I don't know it won't hurt your credit . But if you had the money I'd just pay it before avoid all issues . But if you can't I think you could likely just continue making the payments .

Oh just though of a great idea . Just buy the car from him then sell it . Get the title in your name , if you have to take a loan take a loan . If you have the money even better .
newboggler wrote:
livesoft wrote:I can help you if you give me $15K.
I wish I had 30k in hand... 15 for you and 15 for my friend :| :!:

I am thinking of paying off auto loan and getting verbal agreement with friend to pay me back like a loan... At least it will save my credit!

Is my credit still at risk if he files bankruptcy after the auto loan is paid off?

Thx for your replies!!
No . You buy the car from him . He gives you the title in your name . You sell it to anyone but him . Or you can tell him your idea so he takes it , then sell it to someone else .

You are a really nice guy , if your still trying to help him after he screwed you like this .
Last edited by BigTom on Mon Jul 14, 2014 7:40 pm, edited 1 time in total.
Jerrybaby
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Jerrybaby »

Tricky situation. Seek counsel, there's no common sense solution here, as you can get easily burned with several options before you. I understand the desire to help someone out, but now attempt to limit your exposure now that "its" starting to hit the fan. One thing you'll get from this is who NOT to trust in the future. If someone has no problem trashing your credit, they are no friend. Remember that in future discussions, but don't fully burn that bridge until you on better footing with this ordeal. You might have some more sweet talking to do to get where you want with this. Good luck.
hucards
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by hucards »

Pay off the car loan, take ownership of it then try to sell it and hope you can recoup the $15,000.

Do not lend your friend money. He/she is about to declare bankruptcy and the chances of you ever seeing that money are slim to none.
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prudent
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by prudent »

How does the OP protect himself if the friend stops making payments and doesn't tell the OP? Won't the late payments go on the OP's record and stay there even if he later covers the loan?
ASUGrad
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by ASUGrad »

I am not an attorney, but I did see something similar working in a bank years back.

Husband and wife get divorced. Husband files bankruptcy. Ex wife was technically a co-signer on their equity line, and she didn't even live in the house at this point. Had her checking account at the same bank, $175/month starts getting drafted from her checking account per the "right of offset" rules written into most checking account and loan contracts. It had been months since the bankruptcy before that kicks in. Credit was shot from all the late payments, and the only way she could get out from under the equity line was to either pay it off or file bankruptcy herself.

I can say that if he files bankruptcy that isn't the same as you filing bankruptcy, but I can also say that if he gets behind OR is already behind in the payments that will show up on your credit. That would be my concern at this point. If the loan becomes yours after the bankruptcy you will find out, but when? After its 90 days late? 120 days late? On the verge of being repossessed... after it has been repossessed?

Where is the loan held? Call them ASAP! As a co-signer you can get information on the status of the loan. Is it up to date? How much is left on the loan, don't trust him that its 15k. When are payments due? Start calling monthly to make sure the payment is paid. You might consider asking them to contact you if a payment is ever late but... don't trust them to actually do this, most banks don't bother hounding over an auto loan till its already past 30 days. Also ask about the process to get the loan refinanced into only your name. He would have to sign off on that, but its good to have an idea.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Lafder »

To clarify, you cosigned but have not paid any $ to the car?

Or have you helped with any payments or deposit?

Is your name on the title?

It seems if you have no money involved, your friend is doing the right thing warning you he may not be able to keep making payments in the future. It is not clear if he is asking you to help him make payments or just letting you know his situation.

Has your friend said if he can keep making the payments? Maybe the bankruptcy is for some big medical or other debt and he can afford to keep paying on the car.

If you pay off the car, would it be just in your friend's name?

Unless the 15k is inconsequential to you and you want to gift it to your friend or make an iou arrangement with him, I would not pay off the loan. I would tell my friend to keep making payments and IF he gets to a point he is not going to make a payment on time let you know so you can decide what to do then. ((I have no idea how a personal iou is effected by bankruptcy))

Depending on the risk at the time of the loan, high risk car sales places/financing sometimes even keep a spare key to make repo easy. If the car is repo'd some of the value of the loan may be recouped. Is the car worth more or less than the loan balance?

I thought one of the benefits of bankruptcy is restructuring debt. This could mean your friend gets to keep the car and have lower payments. I have no idea what your name as a cosignor does.

I would not pay off the loan unless you can take the risk of never seeing the $ again. And, you still have months to see what is happening before you have to make a decision, before it effects your credit.

DO you get statements on the car loan so you can see if payments are being made? I would make sure you are so you know even if your friend does not tell you.

(My husband and I were jointly on a car loan with the same address and bank account, and we still got a statement for each of us monthly)

Best wishes, and sorry for your friend's and now your stress.

lafder
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by LadyGeek »

ASUGrad wrote:Where is the loan held? Call them ASAP! As a co-signer you can get information on the status of the loan. Is it up to date? How much is left on the loan, don't trust him that its 15k. When are payments due? Start calling monthly to make sure the payment is paid. You might consider asking them to contact you if a payment is ever late but... don't trust them to actually do this, most banks don't bother hounding over an auto loan till its already past 30 days.
^^^ This is something you should do. Rather than call, see if you can setup an online account to track status.

Another suggestion: Check your credit report to see how the loan appears to the credit agencies. Late payments are usually flagged. Get your free report online instantly, see the wiki: Credit report
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TIAX
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by TIAX »

What state are you in?

Paying off the loan is probably the worst thing you can do. Your credit would not be affected if your friend filed for bankruptcy. If the creditor comes after you and you refuse to pay, then that would affect your credit. But you can just pay the debt at that point if you really wanted to. There's no reason to pay it early.

How about helping your friend refinance into another loan (even if higher rate) without you as the cosigner?
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dm200
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by dm200 »

I am not an attorney, but I do deal with bankruptcy and loans regularly (both auto and personal).

Do NOT rush into doing anything, such as paying the loan off, buying the car, etc. Much depends on applicable state law, as well as the details/particulars of your situation. I believe there are two significant issues, as best I understand, that will or may affect you. These are how your credit is affected and will you, or may you, be held responsible for making payments. After all, you did agree (check the loan agreements for details) to be a cosigner. It may seem "counter intuitive", but sometimes a borrower on a car loan is better off going through bankruptcy with a larger car loan balance (as relates to car value) than lower. What do you estimate is the value of the car related to the outstanding loan balance?

The things I would do right away are to get credit reports for yourself to see just exactly how this is being reported on your credit. If he was late, that would show up. Request him to also get copies of his credit reports and show them or give them to you to see exactly how this is being reported.

What kind of lender is this? if it is a credit union, that might be better in some respects. His bankruptcy attorney should be able to give competent advice about what to do or not do in relation to this loan. HOWEVER, such an attorney may (perhaps will) advise him what is "best" for him and not you.

Finally, are his obligations so serious/large that going through bankruptcy is really in his best interest? If you can get a copy of his credit report (as I suggested), that may give an idea of how serious his problems are. There may very well be alternatives that can be worked out. An honest and impartial debt management - credit counseling organization can sometimes provide such assistance. One thing that works for some folks is that such an organization will work out reduced payments on his loans - and he would make a single payment to them for a specified period of time.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by robertalpert »

If you put the car title in your name, then you would be libel for any auto accident your friend may have. If paying the loan, leave the car in the driver's name, unless you plan to immediately sell the car.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by LeeMKE »

Get an attorney who specializes in bankruptcy.

Didja' know that any assets sold within a window BEFORE the bankruptcy are subject to claw back by the trustee? As I recall, and this ain't my specialty, cash used to pay off loans before filing for bankruptcy can also be clawed back under certain circumstances.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by celia »

I don't know if there are any legal ramifications, but consider this idea (or something similar):

To encourage him to keep making his monthly payments, tell him that you would match any EXTRA payment that he makes each month. Only write a check to the financial institution, not the friend. And to ensure he makes the payment, have him give it to you to mail and you will include your check too.

For example, if he owes $300 per month, but can afford to pay $400, you will throw in another $100 for that month.

OK, everyone, tell me what's wrong with this idea!
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newboggler
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by newboggler »

ASUGrad wrote:I am not an attorney, but I did see something similar working in a bank years back.

Husband and wife get divorced. Husband files bankruptcy. Ex wife was technically a co-signer on their equity line, and she didn't even live in the house at this point. Had her checking account at the same bank, $175/month starts getting drafted from her checking account per the "right of offset" rules written into most checking account and loan contracts. It had been months since the bankruptcy before that kicks in. Credit was shot from all the late payments, and the only way she could get out from under the equity line was to either pay it off or file bankruptcy herself.

I can say that if he files bankruptcy that isn't the same as you filing bankruptcy, but I can also say that if he gets behind OR is already behind in the payments that will show up on your credit. That would be my concern at this point. If the loan becomes yours after the bankruptcy you will find out, but when? After its 90 days late? 120 days late? On the verge of being repossessed... after it has been repossessed?

Where is the loan held? Call them ASAP! As a co-signer you can get information on the status of the loan. Is it up to date? How much is left on the loan, don't trust him that its 15k. When are payments due? Start calling monthly to make sure the payment is paid. You might consider asking them to contact you if a payment is ever late but... don't trust them to actually do this, most banks don't bother hounding over an auto loan till its already past 30 days. Also ask about the process to get the loan refinanced into only your name. He would have to sign off on that, but its good to have an idea.
Thanks for sharing this info...very helpful
I called bank and found out all info as you mentioned.... All payments are on time and amount due is $14.7K. Bank also helped me setup online id to access this account.
My friend is a nice professional guy who got into this big medical/legal bill which he would not be able to possible pay ever and so his lawyer suggested filing bankruptcy.. Friend was nice to tell me this all and also told that he would take care of loan before filing bankruptcy. It's unfortunate for him.... And I wanted to get out of this loan and be there to support him emotionally ..of course not cosigning anything for anyone ever!

Thx all for input...very appreciated
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newboggler
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by newboggler »

TIAX wrote:What state are you in?

Paying off the loan is probably the worst thing you can do. Your credit would not be affected if your friend filed for bankruptcy. If the creditor comes after you and you refuse to pay, then that would affect your credit. But you can just pay the debt at that point if you really wanted to. There's no reason to pay it early.

How about helping your friend refinance into another loan (even if higher rate) without you as the cosigner?
I am in NJ. I am looking into some reputed bankruptcy attorneys around to get a consultation. Also will start mobilizing cash and be ready just in case. Also I invited my friend for chat and will slowly n sweetly start this topic and see what are his plans. I am not wealthy my selves but want to help him out how much ever I can but without involving my credit any more. May be I will ask him to sell car before bankruptcy and pay off loan...car value is around 20-23k.
May be I'm getting paranoid..again!
TIAX
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by TIAX »

newboggler wrote: I am in NJ. I am looking into some reputed bankruptcy attorneys around to get a consultation. Also will start mobilizing cash and be ready just in case. Also I invited my friend for chat and will slowly n sweetly start this topic and see what are his plans. I am not wealthy my selves but want to help him out how much ever I can but without involving my credit any more. May be I will ask him to sell car before bankruptcy and pay off loan...car value is around 20-23k.
May be I'm getting paranoid..again!
It looks like in NJ, a debtor may choose either the state or federal bankruptcy exemptions. Under the federal exemptions, a debtor may exempt up to $3450. http://research.lawyers.com/new-jersey/ ... ersey.html. NJ has no specific car exemption. However, as people mentioned above, your friend can reaffirm the loan.

Maybe if you provide details on his medical bills and legal issues, you may get some advice for your friend.
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JamesSFO
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by JamesSFO »

celia wrote:I don't know if there are any legal ramifications, but consider this idea (or something similar):

To encourage him to keep making his monthly payments, tell him that you would match any EXTRA payment that he makes each month. Only write a check to the financial institution, not the friend. And to ensure he makes the payment, have him give it to you to mail and you will include your check too.

For example, if he owes $300 per month, but can afford to pay $400, you will throw in another $100 for that month.

OK, everyone, tell me what's wrong with this idea!
Well in bankruptcy what the friend can pay on loans is going to be set by the BK court. The OP cannot get his friend to play favorites with this loan. So this is a bad idea in a close window to the BK since the payments can be clawed back.

The OP needs to go see a bankruptcy attorney.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Professor Emeritus »

newboggler wrote: My friend is a nice professional guy who got into this big medical/legal bill which he would not be able to possible pay ever and so his lawyer suggested filing bankruptcy.. Friend was nice to tell me this all and also told that he would take care of loan before filing bankruptcy. It's unfortunate for him.... And I wanted to get out of this loan and be there to support him emotionally ..of course not cosigning anything for anyone ever!
You are being set up for what could be a very nasty surprise.

http://thismatter.com/money/credit/bank ... rences.htm

In my humble opinion your friend is not being "nice" at all, he is doing the bare minimum absolutely required by law.

You are considered an "insider" .
The lender is a secured creditor.

You need expert help
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Gill »

Kennedy was president when I studied bankruptcy law, but the proposed payment seems to be clearly a fraudulent transfer which can be set aside by the bankruptcy trustee.
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saladdin
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by saladdin »

Check your credit report. Willing to bet 1 Boglehead Internet Dollar he has already been late (or will be) and your credit has been hit.

I've had friends BK and most just let everything lapse knowing they are going to file.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by LadyGeek »

For completeness, here's a definition of clawback: Clawback (Wikipedia)

I believe this is the relevant usage as applied in this thread: Bankruptcy Clawbacks of Preferential & Fraudulent Transfers (I'm not a lawyer.)
If you pay back preferred creditors or transfer property out of your name prior to filing for bankruptcy, the bankruptcy trustee may be able to void (undo) that transaction and get the property back for the benefit of your unsecured creditors. This is referred to as the bankruptcy "clawback" provision.
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Boglemama
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Boglemama »

ASUGrad wrote: Where is the loan held? Call them ASAP! As a co-signer you can get information on the status of the loan. Is it up to date? How much is left on the loan, don't trust him that its 15k. When are payments due? Start calling monthly to make sure the payment is paid. You might consider asking them to contact you if a payment is ever late but... don't trust them to actually do this, most banks don't bother hounding over an auto loan till its already past 30 days. Also ask about the process to get the loan refinanced into only your name. He would have to sign off on that, but its good to have an idea.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Professor Emeritus »

LadyGeek wrote:For completeness, here's a definition of clawback: Clawback (Wikipedia)

I believe this is the relevant usage as applied in this thread: Bankruptcy Clawbacks of Preferential & Fraudulent Transfers (I'm not a lawyer.)
If you pay back preferred creditors or transfer property out of your name prior to filing for bankruptcy, the bankruptcy trustee may be able to void (undo) that transaction and get the property back for the benefit of your unsecured creditors. This is referred to as the bankruptcy "clawback" provision.
worth mentioning that this case is a little more complicated because it is a secured creditor. It may be lawful to arrange a sale of the car with payment of the loan from the proceeds. Since the car secures the loan, the other creditors are not disadvantaged. The worst outcome is a repossession and lousy sale and a deficiency judgment. But This all takes legal advice.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by LadyGeek »

^^^ Thanks, I misunderstood the situation between an unsecured and secured creditor (as discussed here). Hopefully, that article is still helpful.
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newboggler
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by newboggler »

Hi all,
thanks again for advises.
I have setup online account and found out that there is no late payment so far.... fingers crossed.
Credit report should be good too!
Also friend does not have any other debts.
Car is valued around 20-23K and loan is 14.7k so that made me feel tiny lil better!
I am going to talk to my friend and try to convince him to pay this auto loan off asap atleast 4 months before BK if any !
Situation is very delicate and I'm trying to handle it with sweetness.

We are going to consult a BK lawyer to explain out particular situation better.
Any suggestions for a good BK Lawyer NJ/NY area? Appreciated.

As a backup, I am mobilizing funds in one account just in case to save my credit score/report !

My understanding is once loan is paid by my friend 4-5 months before BK (again if any) than my credit is not involved. "anybody pls confirm"

As some of you would like to know what happened to my friend - he is a young healthcare professional "wrongly" sued by some one who is looking for lots of money to settle. Case just entered and is exepected to be won by my friend (as per his lawyer.. i dont trust him too) If unfortunately my friend loses case he will have to file BK as he would not be able to pay huge amounts.
The situation is still in making and process of case just started; friend have a nice stable job and so am trying to convince him to pay this auto loan off .. he intends to do so !

But still I am woried !
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by crg11 »

If the car is worth $23k and there is ~$15k left on the loan, he could sell the car now, pay off the loan, and use the proceeds to buy a cheaper car with no loan. Wipes the loan off the books, allows him to own the replacement car outright, gives him a little extra cash to work with during this legal mess he's in, and most importantly, puts you in the clear.

And then never, ever, co-sign a loan with someone you're not married to again.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by bottlecap »

newboggler wrote:But still I am woried !
The very good thing is that the creditor with respect to the car appears to be oversecured, in that the vehicle is worth more than the debt (this is unusual in a bankruptcy situation). As a result, if the car had to be sold, for example, the lender should have its debt paid in full without the need to look to you. With that said, you don't want to do anything to screw that up, so your plan to speak with an attorney is a good idea. I really feel that an attorney that does this on a day to day basis could put your mind at ease and give you decent advice with little to no research and about a 30 minute consult.

Good luck,

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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by placeholder »

If he has no other debts why the suggestion to declare bankruptcy?
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Meaty »

Paying off the loan is a bad idea given the trustee can declare it a preferential payment (see 11 USC section 547) which, in effect, takes your payoff away and disperses it to other creditors.

Regarding the impact on your credit, there are way too many factors in play to say exactly how it will impact you. For one, the chapter your friend files will make a difference. You should be aware if he/she filed a chapter 7 the creditor will immediately begin calling you for payment. If he/she filed a 13 the co-debtor stay will prevent any collection attempt from you for the duration of the case, however, upon discharge or dismissal you'll be pursued.

I agree with previous advice to seek legal counsel. That said, your options may be limited.

EDIT: One other thought, convince your friend to either refi it into their own name now or trade it in on something less expensive (that you also don't co-sign for)
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Dave1 »

IMO you are getting way too involved with this. Yes, as the cosigner of the car loan you are involved, but I don't think "we should consult with a bankruptcy lawyer" "he should consult with a bankruptcy lawyer". If he is indeed as "nice" as you say he is, he should take the initiative to keep you totally out of this (including not letting your credit be impacted, and not having you stuck with the repayment of HIS loan) and do whatever is needed on his own.
I am also quite surprised at why your friend is in this situation ... If your friend doesn't have malpractice / liability he should look into getting it asap.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by bottlecap »

I didn't notice the "we.". YOU should consult your own attorney. If your friend files bankruptcy, he will get his own, who won"t give two cents about your situation.

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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by retiredjg »

newboggler, you are seeing this person as a friend and that may be blinding you just a bit.

Remember that he asked you to co-sign a car loan. There's a reason for that. We don't know what it is, but possibilities are his credit was already bad (by his own bad choices) or that he chose to buy a car beyond his means, or any of several other things.

He asked you to help and you did. But remember, there is some history for why he had to ask you for help.

If he really is a friend, you should treat him as one a nd help him in non-financial ways to get out of this mess. But he is not simply an innocent victim here. He has made decisions that have gotten him to this place. If you want to be a real friend, help him grow up. Then maybe he will stop taking advantage of his friends.

If he simply won't grow up, you need to protect yourself and move on.
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Professor Emeritus »

Meaty wrote:Paying off the loan is a bad idea given the trustee can declare it a preferential payment (see 11 USC section 547) which, in effect, takes your payoff away and disperses it to other creditors.
This is why its important that the loan is secured by the car. The secured loan would be paid off before any unsecured creditors. Of course the car is an asset of the bankruptcy estate .
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by surfstar »

newboggler wrote: As some of you would like to know what happened to my friend - he is a young healthcare professional "wrongly" sued by some one who is looking for lots of money to settle. Case just entered and is exepected to be won by my friend (as per his lawyer.. i dont trust him too) If unfortunately my friend loses case he will have to file BK as he would not be able to pay huge amounts.
Wait, wouldn't he have insurance to protect against this exact thing?
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Re: I'm cosigner .. Friend thinking of bankruptcy .. Pls hel

Post by Meaty »

Professor Emeritus wrote:
Meaty wrote:Paying off the loan is a bad idea given the trustee can declare it a preferential payment (see 11 USC section 547) which, in effect, takes your payoff away and disperses it to other creditors.
This is why its important that the loan is secured by the car. The secured loan would be paid off before any unsecured creditors. Of course the car is an asset of the bankruptcy estate .
Not true. The trustee would declare the premature payoff as preferential and make the creditor remand the funds to the estate. The creditor would then be able to exercise their lien - so in effect her payoff would be used not to payoff the car loan
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