Saturday, March 16, 2013

Can a Collection Agency Sue a Co-Signer?

Think before you co-sign!
Not everyone is flouncing around with perfect credit – especially in the wake of the recent economic meltdown. At the same time, the demand for credit has increased. People who've always used credit sparingly in the past are now finding themselves counting on their credit cards to get them through disastrous financial situations – and those situations can decimate credit scores. If you're one of the lucky few who pulled through without maiming your credit scores, don't be surprised if friends or family members ask you to co-sign their loan or credit card applications. Doing so, however, gives your loved one the power to pull you down into a financial tar pit right alongside him.

Your Responsibility As a Co-Signer

When you co-sign for a debt, you are potentially handing over your income and good credit score in order to help a loved one. As a rule, co-signing carries NO benefit for the co-signer – only risk. Nobody co-signs a debt believing that they'll end up on the hook for the payments. But even if the debtor is financially responsible (and that's an iffy prospect, given the fact that the debtor needed a co-signer in the first place), circumstances beyond their control could leave them unable to make the payments.

That's where you come in. The creditor doesn't care that you weren't expecting to be saddled with this debt. Nor does it matter if you are financially strapped yourself and simply can't afford the payments. In some cases, creditors and collection agencies can pursue an account's cosigners for payment – even going so far as to file a lawsuit – without first pursuing the debtor. This simply means that when the payments stop, creditors and collectors can bypass the debtor and make a beeline for you.

Collection Agencies Can Sue Co-Signers

People in a financial bind pay priority debts, such as mortgages, car payments, utilities, etc. first and apply any leftover income to non-vital debts, such as credit card bills and collection payments. Given the high volume of people in trouble financially, many collection agencies have had to turn to alternate routes of collecting debt. Suing the debtor and/or his co-signer is one such method.

The exception to this rule occurs if the debt is an old one and beyond the statute of limitations in the debtor and co-signer's state. Occasionally an unscrupulous collection agency will try to file a lawsuit after the statute of limitations expires, but either the debtor or the co-signer can use an expired statute of limitations as an airtight defense in a debt collection lawsuit.

Avoiding a Debt Collection Lawsuit As a Co-Signer

Want to say out of court? Don't co-sign!
If a creditor or collection agency decides to hang you, the co-signer, out to dry, your options are limited. You either pay the debt or you take the credit damage and other consequences connected to a collection judgment. These include, but are not limited to: wage garnishment, bank levies and asset seizure.

An even better way to prevent a debt collection lawsuit is not to co-sign in the first place. The account goes onto your credit report as well as the debtor's. This means all activity connected to the account such as high balances, missed payments, etc. can and will affect you. Co-signing is like drugs kids, just say NO. And don't you dare let yourself get pressured into co-signing by a loser family member who can't keep his financial ducks in a row. Don't feel pity. Don't make excuses for the person. And above all, don't co-sign!

1 comment:

  1. Unless the collector is using sewer service you should have notice a collector wants to go to court. In Illinois which has exemptions, the bank account would be declared before the judgement goes into effect.
    Collection agency debt