A legal question-and-answer for seniors
Dear Seniors Legal Line: I am a retired senior living on a fixed income. My adult child has had some financial problems and asked me to cosign with him on a car purchase. I suggested that if he could not get financing, maybe he should look at a l...
Dear Seniors Legal Line:
I am a retired senior living on a fixed income. My adult child has had some financial problems and asked me to cosign with him on a car purchase. I suggested that if he could not get financing, maybe he should look at a less expensive car. My son, however, talked me into cosigning on the loan that allowed him to purchase the car. He has made the payments on the car for several months; however, he lost his job and now cannot make payments. I am living on Social Security and a small pension and do not have the extra money to make this several hundred dollars a month car payment. The loan also mandates that he keep insurance on the car. My son's driving record is not spotless and, therefore, his insurance is not cheap. The car loan people are now contacting me about making my son's car payments and insuring the car. What should I do?
I understand that you had the best of intentions to allow your son to buy a car in order to help him get to work, etc. However, now you have found yourself in a situation where you are on the hook for a car that you cannot afford, your son cannot afford, and there is a loan and insurance for which you are responsible. Your original reaction, that your son should look for a less expensive car that he can afford on his own, was probably the correct response.
You did not indicate the amount of money for the loan. However, if this was a new car loan, the loan amount is probably much greater than the car's actual value, since car values for the most part depreciate in value over time. If the lender decides to repossess the car, they will sell it at a public auction for almost always less than the amount you and your son owe. You and your son will still owe additional money for the balance of the loan, called the deficiency amount. While you are jointly liable with your son, your son probably does not have the means, savings or investments to facilitate such payoffs since there was a reason you had to cosign. That reason is coming to bear now.
The lender could seek a judgment against either you and/or your son for the balance of the loan after the car is repossessed. While your social security income is exempt from collections, some pension incomes may be susceptible to judgment collection. Also, if you have any interest in real estate, a judgment against you could result in a lien against your real estate. Such creditor's liens cannot normally cause foreclosure. Either way this will have a negative effect on your credit rating if the loan payments are not kept up. To get you out of this loan or satisfy the lender, you could sell the car for at least the amount you owe. If you sell the car for less than the loan, while not alleviating all your liability, this would limit it to a smaller and more certain amount since you probably could sell it at a higher price than at a public auction sale. Pay the sales proceeds to the lender, getting a receipt in return. Then you or your son would pay off the remaining loan debt (over and above the loan amount).
I have seen similar situations fairly often and need to caution people against over-stretching themselves to accommodate somebody else's desired purchase. A more dire situation occurred when a senior had cosigned on a new car for his daughter and the daughter used the new car in the commission of a crime. As a result, the vehicle was confiscated by the police. Minnesota State Law allows the confiscation and sale of vehicles when the vehicles are involved in certain crimes, ranging from drugs crimes to shoplifting, just to name a few. In this example, neither the senior nor his daughter had possession of the vehicle and were both stuck as a responsible party for a loan of over $10,000.
Of course, as the cosigner, you are the guarantor of the loan. If you are forced to pay the loan, you can sue your son to pay you back for the amount you paid. However, most parents do not wish to sue their children, so in the end, the parent is the one who is negatively impacted. The best way to avoid this situation is to not get into it in the first place.
Hopefully, you will find a buyer to buy this car from you and your son which would allow you to pay off most of the loan. You (and your son) will still be responsible for the remainder of the loan. However, this will be much easier to pay off if most of the principal, from the sale, is put toward the loan balance. You also will not have the continuing insurance costs. The lender will expect that the entire loan to be paid off before releasing the lien against the car.
If you have any other questions concerning this issue, feel free to call us at the Senior Citizens' Law Project.
This column is written by the Senior Citizens' Law Project. It is not meant to give complete answers to individual questions. If you are 60 years of age or older and live within the Minnesota Arrowhead Region, you may contact us with questions for legal help by writing to: Senior Citizens' Law Project, Legal Aid Service of Northeastern Minnesota, 302 Ordean Bldg., Duluth MN 55802. Include a phone number and return address. To view previous articles, go to: www.lasnem.org . Reprints by permission only.