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I cosigned for a loan for a friend. He has now moved away and is not making payments. I have been asked to pay--they even called my job--and I need to keep my credit. The payments are too high for me to manage. If I pay off the loan to keep my credit can I take him to small claims court to get my money back?

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    It doesn't really help you now, but if the bank doesn't trust the friend to pay the loan on schedule, to the point of requiring a co-signer, you really have to ask yourself: "why should I trust that they will pay on schedule?". – a CVn Jun 19 '16 at 19:11
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    It's not possible to help on this QA, Leslie, unless you state the approximate amount and what the item in question was. – Fattie Jun 20 '16 at 12:30
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    Your last question is "should I sue someone who has no money and does not pay what he owes?" Suppose you do and your suit is successful. Where do you suppose the money is going to come from? Your "friend" is playing a game where you try to collect a loan and he tries to not pay it; how good do you think he is at the debtor end of that game compared to how good you are at the creditor end? Evidence so far is that's he's pretty good at this game. – Eric Lippert Jun 20 '16 at 13:37
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    Too high to manage? Is this a car loan? Or a real estate loan? If there is collateral somewhere that can be repossessed, do not pay a single cent until that that property is repossessed. Collection agencies tend to go after the easiest targets. Same goes if you can track down that person and find out if he has a job that they can garnish. Also, if it's a student loan, see that he can not get a copy of his degree, or a copy of his transcript, even if you do manage to pay off that loan. As to Small Claims court, it will depend on the amount in question and the jurisdiction you're in. – Stephan Branczyk Jun 20 '16 at 18:43
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    it's unfortunate that so many folks have made so much effort on this page - but the OP has just disappeared and offered no further information. – Fattie Jun 21 '16 at 12:29

12 Answers 12

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Cosigning is explicitly a promise that you will make the payments if the primary signer can not. Don't do it unless you are able to handle the cost and trust the other party will "make you whole" when they can... which means don't do it for anyone you would not lend your money to, since it comes out to about the same level of risk.

Having agreed, you're sorta stuck with your ex-friend's problem.

I recommend talking to a lawyer about the safest way get out of this. It isn't clear you can even sue the ex-friend at this point.

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    I'd say "don't cosign for anyone you would not feel confortable giving out the money". bankrate.com/finance/debt/reasons-not-to-co-sign-loan.aspx – Mindwin Jun 20 '16 at 13:11
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    While this advice could be right - it also could be really really bad. Start talking to a lawyer about a 2k loan and then get the lawyers 3k bill... I think you should delete this or say do this if the loan is over 100k or something. But lawyering up sounds safe and right but hardly ever works out that way. – blankip Jun 20 '16 at 18:22
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    @blankip - there are plenty of lawyers who will discuss options without charging, and even when they do charge you can tell them how much budget you have and then they will restrict the services they offer to those you can afford. – Jules Jun 20 '16 at 18:39
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    @MasonWheeler - the real scenario is the type of lawyer that probably would be contacted for this person (bankruptcy/debt/student loan law ads) is the exact type that would do a 15-29 min consultation then schedule for an appointment, you sending in docs, proof, and so on. This is the weaselly guy that will nickel and dime you for the next 2 months for the 10k loan. At first he will tell you that for a couple hours he might be able to wipe it out... Then 15 billable hours later you are on a payment plan for the 10k. Seen it 100 times. – blankip Jun 20 '16 at 19:21
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    @Jules - it just depends. If it can be filed in small claims the legal assistant will just tell you that - and that is the best advice. If it is a little over that amount they might have a very brief chat. Really though the advice this person gets from here or legal stack would be as good or better than a lawyer. At least the people here are a bit unbiased. The lawyer is looking to make money. They don't make money by telling people they don't need legal counsel. – blankip Jun 20 '16 at 21:21
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I'm sorry you are going through this, but what you are dealing with is exactly is how cosigning works. It is among other reasons why you should never cosign a loan for someone unless you are 100% prepared to pay the loan on their behalf.

Unfortunately, the main "benefit" to cosigning a loan is to the bank - they don't care who makes payments, only that someone does. It is not in their interest to educate purchasers who can easily get themselves into the situation you are in.

What your options are depends a fair bit on the type of loan it is. The biggest problem is that normally as cosigner you cannot force your friend to do anything. If it is for a car, your best bet is to convince them to sell the car and hopefully recoup more than the cost of the loan.

Many workplaces have some sort of free service to provide counseling/guidance on this sort of thing. Look into your employee benefits as you may have some free services there.

You can sue your friend in small claims court, but keep in mind:

  • The entire point of cosigning is to make the situation you are talking about come true
  • If your friend cannot pay because he has no money, suing them will likely do nothing
    • You may be able to force the friend to sell an asset (if it is cosigned)
  • If your friend has money and just isn't paying, they are trashing their credit
    • Document your communication with the friend if you go this route

It also depends on how big the loan is relative to your income. While it might feel good to sue your friend in small claims court, if it's for $500 it probably isn't worthwhile - but if your friend just stopped paying off their $30k vehicle assuming you will pay for it, even though they can pay for it themselves?

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    "It is among other reasons why you should never cosign a loan for someone unless you are 100% prepared to pay the loan on their behalf." - Shouldn't that be "It is among other reasons why you should never cosign a loan for someone". Full stop. If the bank won't lend to someone, neither will I. – PeteCon Jun 20 '16 at 15:35
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    @Pete there are situations you may want to do this. But you should always be prepared to pay for the full amount in those situations. – enderland Jun 20 '16 at 15:38
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    Many smart people use the rule "never co-sign a loan for anyone who doesn't carry your genes, and even then, assume you'll have to pay sooner or later." A huge percentage of the time, co-signing turns out to be a gift. – Jeffiekins Jun 20 '16 at 17:59
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    I learned: Never cosign or guarantee for a loan. If you can afford to and are willing to give the person the money, give it to them. If you cannot afford it or you are not willing to give them the money, then don't. I hope that makes the decision easier. – gnasher729 Jun 20 '16 at 20:16
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    "If your friend cannot pay because he has no money, suing them will likely do nothing" -- there's different kinds of "no money", though. There's "no money" meaning "aw, it's not really convenient for me to pay right now, cut me some slack" and there's "no money" meaning, "I file for personal bankruptcy and sell everything I own". Suing is what distinguishes those two cases when the debtor isn't co-operating, and co-signing is what transfers the hassle of suing from the bank to you. – Steve Jessop Jun 21 '16 at 8:05
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I am not sure how anyone is answering this unless they know what the loan was for. For instance if it is for a house you can put a lien on the house. If it is for the car in most states you can take over ownership of it. Point being is that you need to go after the asset.

If there is no asset you need to go after you "friend". Again we need more specifics to determine the best course of action which could range from you suing and garnishing wages from your friend to going to small claims court. Part of this process is also getting a hold of the lending institution. By letting them know what is going on they may be able to help you - they are good at tracking people down for free.

Also the lender may be able to give you options. For example if it is for a car a bank may help you clear this out if you get the car back plus penalty. If a car is not in the red on the loan and it is in good condition the bank turns a profit on the default. If they can recover it for free they will be willing to work with you. I worked in repo when younger and on more than a few occasions we had the cosigner helping. It went down like this... Co-signer gets pissed like you and calls bank, bank works out a plan and tells cosigner to default, cosigner defaults, banks gives cosigner rights to repo vehicle, cosigner helps or actually repos vehicle, bank gets car back, bank inspects car, bank asks cosigner for X amount (sometimes nothing but not usually), cosigner pays X, bank does not hit cosigners credit, bank releases loan and sells car. I am writing this like it is easy but it really requires that asset is still in good condition, that cosigner can get to the asset, and that the "friend" still is around and trusts cosigner. I have seen more than a few cosigners promise to deliver and come up short and couple conspiring with the "friend".

I basically think most of the advice you have gotten so far is crap and you haven't provided enough info to give perfect advice. Seeking a lawyer is a joke. Going after a fleeing party could eat up 40-50 billable hours. It isn't like you are suing a business or something. The lawyer could cost as much as repaying the loan - and most lawyers will act like it is a snap of their fingers until they have bled you dry - just really unsound advice.

For the most part I would suggest talking to the bank and defaulting but again need 100% of the details.

The other part is cosigning the loan. Why the hell would you cosign a loan for a friend? Most parents won't cosign a loan for their own kids. And if you are cosigning a loan, you write up a simple contract and make the non-payment penalties extremely costly for your friend. I have seen simple contracts that include 30% interests rates that were upheld by courts.

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    This is pretty much the only way out that I see it (hopefully it was for a home, since he can't have taken that with him when he moved). In this case you can try to scrape together payments somehow until you can sell the house, and you may not be out too horribly much money in the end. – T.E.D. Jun 20 '16 at 20:38
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The point of co-signing for a friend is that they're your friend. You signed for them in the belief that your friendship would ensure they didn't burn you. If your friend has hung you out to dry, basically they aren't your friend any more.

Before you lawyer up, how's about talking to your friend as a friend? Sure he may have moved away from the area, but Facebook is still a thing, right? It's possible he doesn't even realise you're taking the fall for him.

And presumably you have mutual friends too. If he's blanking you then he does know you're taking the fall and doesn't care. So call/message them too and let them know the situation. Chances are he doesn't want all his other friends cutting him off because they can see he'd treat them the same way he's treating you. And chances are they'll give you his number and new address, because they don't want to be in the middle.

If this fails, look at the loan. If it's a loan secured against something of his (e.g. a car), let it go. The bank will repossess it, and that's job done. Of course it will look bad on your credit for a while, but you're basically stuck with that.

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    I'm sorry, but co-signing goes way way beyond "friend". I know people who wouldn't do this for their own kids. – T.E.D. Jun 20 '16 at 20:34
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    "Sure he may have moved away from the area, but Facebook is still a thing, right?" Telephones are still a thing, right? (Or video calls.) Something like this surely needs the back-and-forth of a proper conversation. Or am I showing my age? – T.J. Crowder Jun 21 '16 at 5:23
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    @T.J.Crowder if you use Facebook you'll have written, verifiable evidence you spoke to that person and what you spoke about, unless you recorded the telephone call. Might be useful if it does ever get legal. – Dan Pantry Jun 21 '16 at 8:58
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    @T.J.Crowder Sure, phones are a thing. :) But if they've moved away then you might not have their new landline number, and perhaps they've changed their mobile number too. But you won't have lost them off Facebook. I'm not so much thinking about using Facebook as the primary means of communication (per Dan's comment), more about it being a way of initially reaching out to establish communications. – Graham Jun 21 '16 at 10:17
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    @Dan Fair enough, but the OP has co-signed for this person. That presumably means he was a close enough friend to think he could be trusted. I do agree with you and TED, but the "should I co-sign?" horse has not just left the barn but is lying in a ditch half a country away with all four legs in the air. Neither closing the door nor flogging its dead corpse are much use to the OP at this point. ;) – Graham Jun 21 '16 at 16:37
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This is what cosigning means.

You promised to pay the loan if he didn't. That was a commitment, and I recommend "owning" your choice and following it through to its conclusion, even if you never do that again.

TLDR: You made a mistake: own it, keep your word, and embrace the lesson.

Why? Because you keep your promises. (Nevermind that this is a rare time where your answer will be directly recorded, in your credit report.)

This isn't moralism. I see this as a "defining moment" in a long game: 10 years down the road I'd like you to be wise, confident and unafraid in financial matters, with a healthy (if distant) relationship with our somewhat corrupt financial system. I know austerity stinks, but having a strong financial life will bring you a lot more money in the long run.

There may be more to the story

Many are leaping to the conclusions that this is an "EX-friend" who did this deliberately. Don't assume this.

For instance, it's quite possible your friend sold the (car?) at a dealer, who failed to pay off this note, or did and the lender botched the paperwork. And when the collector called, he told them that, thinking the collector would fix it, which they don't do.

The point is, you don't know: your friend may be an innocent party here.

Time is a factor

Creditors generally don't report late payments to the credit bureaus until they're 30 days late. But as a co-signer, you're in a bad spot: you're liable for the payments, but they don't send you a bill. So when you hear about it, it's already nearly 30 days late. You don't get any extra grace period as a co-signer.

So you need to make a payment right away to keep that from going 30 late, or if it's already 30 late, to keep it from going any later.

If it is later determined that it was not necessary for you to make those payments, the lender should give them back to you. A less reputable lender may resist, and you may have to threaten small claims court, which is a great expense to them. Cheaper to pay you.

Friendship matters too!

They say France is the nation of love. They say America is the nation of commerce. So it's not surprising that here, people are quick to burn a lasting friendship over a temporary financial issue. Just saying, that isn't necessarily the right answer.

I don't know about you, but my friends all have warts. Nobody's perfect. Financial issues are just another kind of wart. And financial life in America is hard, because we let commerce run amok. And because our obsession with it makes it a "loaded" issue and thus hard to talk about. Perhaps your friend is in trouble but the actual villain is a predatory lender.

Point is, the friendship may be more important than this temporary adversity. The right answer may be to come together and figure out how to make it work.

Yes, it's also possible he's a human leech who hops from person to person, charming them into cosigning for him. But to assume that right out of the gate is a bit silly.

Talk to the lender

The first question I'd ask is "where's the car?" (If it's a car). Many lenders, especially those who loan to poor credit risks, put trackers in the car. They can tell you where it is, or at least, where it was last seen when the tracker stopped working. If that is a car dealer's lot, for instance, that would be very informative.

Simply reaching out to the lender may get things moving, if there's just a paperwork issue behind this.

This is a life lesson. Make the most of it.

Many people deal with life troubles by fleeing: they dread picking up the phone, they fearfully throw summons in the trash. This is a terrifying and miserable way to deal with such a situation. They learn nothing, and it's pure suffering.

I prefer and recommend the opposite: turn into it, deal with it head-on, get ahead of it. Ask questions, google things, read, become an expert on the thing. Be the one calling the lender, not the other way round. This way it becomes a technical learning experience that's interesting and fun for you, and the lender is dreading your calls instead of the other way 'round.

I've been sued. It sucked. But I took it on boldly, and and actually led the fight and strategy (albeit with counsel). And turned it around so he wound up paying my legal bills. HA! With that precious experience, I know exactly what to do... I don't fear being sued, or if absolutely necessary, suing.

You might as well get the best financial education. You're paying the tuition!

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    I don't think the moral lesson is appropriate here. Maybe if this was LifeCoach.SE, but since it's not I would suggest trimming it down to just the personal finance advice. – Matthew Read Jun 21 '16 at 18:32
  • Adjusted. A "moral lesson" never entered my mind. – Harper Jun 23 '16 at 21:31
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Another option, not yet discussed here, is to allow the loan to go into default and let the loaning agency repossess the property the loan was used for, after which they sell it and that sale should discharge some significant portion of the loan.

Knowing where the friend and property is, you may be able to help them carry out the repossession by providing them information.

Meanwhile, your credit will take a significant hit, but unless your name is on the deed/title of the property then you have little claim that the property is yours just because you're paying the loan.

The contract you signed for the loan is not going to be easily bypassed with a lawsuit of any sort, so unless you can produce another contract between you and your friend it's unlikely that you can even sue them.

In short, you have no claim to the property, but the loaning agency does - perhaps that's the only way to avoid paying most of the debt, but you do trade some of your credit for it.

Hopefully you understand that what you loaned wasn't money, but your credit score and earning potential, and that you will be more careful who you choose to lend this to in the future.

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    "allow the loan to go into default" This could have a big negative impact on his credit, which was mentioned in the question. – industry7 Jun 24 '16 at 19:43
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    @industry7 correct. This is why I said, "your credit will take a significant hit." They did mention both preserving their credit and not paying the full amount, but they didn't tell us which was more important, or what the loan was for. Therefore we can assume that one has priority, but it might be a bad assumption. So this answer provides information about an option that is perhaps less ideal, but might be worthwhile, particularly to others who read this Q&A later under slightly different circumstances. – Adam Davis Jun 25 '16 at 1:09
  • @ Adam Davis. Ok, you're right, both of those things were mentioned in the question. Very good point, and so I gave you an upvote :-) – industry7 Jun 29 '16 at 17:24
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I would like to add one minor point for clarity: Cosigning means that you, alongside your friend, enter into a contract with the bank. It does not necessarily mean that you now have a contract with your friend, although that could implicitly be concluded.

If the bank makes use of their contracted right to make you pay your friend's debts with them, this has no effect on your legal relationship with your friend. Of course, you can hold him or her liable for your damages he or she has caused. It is another question whether this would help you in practice, but that has been discussed before.

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    The point you make is an important one. It's likely that suing the friend would only result in damages in the amount of the missed payments and any extra interest charges being awarded. Absent a contract between the two cosigners, there is no legal basis to conclude that primary signer's default with the bank means that the full amount of the loan is immediately payable to the secondary signer. – TainToTain Jun 22 '16 at 17:31
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Without all the details it's hard to tell what options you may have, but none of them are good.

When you cosign you are saying that, you believe the primary signer will make good on the loan, but that if he doesn't you will. You are 100% responsible for this debt. As such, there are some actions you can take.

First, really try to stress to your friend, that they need to get you outta this loan. Urge them to re-finance with out you if they can.

Next look for "better" ways of defaulting on the loan and take them. Depending on what the loan is for you could deed-in-lue or short sale. You may just have to admit default. If you work with the bank, and try not to drag out the process, you will likely end up in a better place down the line.

Also of importance is ownership. If you pay the loan, do you get ownership of the thing the loan was secured against? Usually not, but working with an attorney and the bank, maybe. For example, if it's a car, can the "friend" sign over the car to you, then you sell it, and reduce your debt.

Basically as a cosigner, you have some rights, but you have all the responsibilities. You need to talk to an attorney and possibly the bank, and see what your options are. At this point, if you think the friend is not that much of a friend anymore, it's time to make sure that any conversation you have with them is recorded in email, or on paper.

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Sue the friend.

When you win, garnish his wages. It does not have to be by so much that it makes him quit his job, but get 75.00 per pay period to come to you.

This may require the use of a private investigator but, if you want to make this "friend" face consequences, this is your only option.

Otherwise, let it go and keep paying his bill.

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    Absent a contract between the two cosigners, there is no legal basis to conclude that the primary signer's default with the bank means that he owes the full amount of the loan to the secondary signer. Without a contract, the court may only award actual damages, which, in this case, is the amount of the missed payments and extra interest charges (if any). If the loan is secured by property, it's a much better idea to get the lender to repossess that property. – TainToTain Jun 22 '16 at 17:39
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I came across such a situation and I am still facing it. My friend borrowed my credit card for his expenses as he had misplaced his debit card and for the time being had asked for my credit card to handle the expenses he does.
He paid for initial 2 months and then was not able to make payments, mainly due to not being able to arrange money or if it was a contri party, he would collect cash from friends but again spend the same.
Months passes by... the bill had come upto 65k and calls from bank and other respective organizations Finally my dad came into picture and slowly the issue is resolving he has paid 50K remaining is still pending.

So basically, the reason I shared this part of story was he is my Best friend and in order to not spoil our friendship I did not want to take any such step which would later on affect our friendship. This completely depends on the individuals how they react to the situation. Keeping Ego, superiority, favour sort of feelings and words apart things can be resolved between friends. You do not know what is the situation on the other side. Probably you can connect with him ask him to explain you why is not able to pay the debts and take action accordingly.

If he is not able to provide a proper reason then you may take some actions like mentioned in initial answers, run after the assets he own or anything else.Stay Calm and patient. Do not take any such step which you would regret later on...!

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    Everybody's a friend until times get tough. Whether someone is a true friend can only be determined through how they handle negative events. It sounds like neither the person in your story nor the OP's are friends and should not be treated as such. – TainToTain Jun 22 '16 at 17:27
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I think I'm reading that you cosigned a loan with a friend, and they've stopped paying on their loan. Not a whole lot of options here. You'll have to pay the loan off by yourself or allow the loan to go into collections in hopes that you'll get more money later and pay it off then. Small claims court is definitely an option at that point.

Next time, perhaps try not to cosign loans with friends unless you really trust them and are confident that you can pay the loan off if they cannot.

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    Don't you open yourself for legal action if you stop paying a loan you have consigned for? – Dmitry Grigoryev Jun 20 '16 at 10:19
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    Yes, you open yourself to basically the same legal actions as the primary signer including forfeiture of property. However, usually the property belongs to the primary signer exclusively. and so the bank has nothing to take away from you, except your credit rating. Oh and all your money, if you have account with them. (depends on things and jurisdictions) – coteyr Jun 20 '16 at 13:55
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If the bank is calling your employer, the federal Fair Debt Collection Practices Act (FDCPA) limits where and when debt collectors can contact consumer debtors. In many cases, debt collectors that contact debtors at work are violating the FDCPA.

http://www.nolo.com/legal-encyclopedia/a-debt-collector-calling-me-work-is-allowed.html

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