What Happens When You’re Sued for Co-signing a Defaulted Student Loan?

Question from Miksky, What Happens When You’re Sued for Co-signing a Defaulted Student Loan?

Answer from AI:

If you co-signed a private student loan and the borrower has defaulted, you may be held legally responsible for repaying the debt. Lenders typically pursue co-signers when the primary borrower cannot pay, as co-signers are equally liable for the debt. Here’s what you need to know about the process and your potential liability:

What Happens When a Loan Defaults

When a borrower defaults on a private student loan, the lender will usually attempt to collect the debt. This may involve sending the debt to a collection agency or pursuing legal action against both the borrower and the co-signer. As a co-signer, you are legally obligated to repay the debt if the primary borrower cannot.

Legal Consequences of Default

If the lender decides to sue, they will typically file a lawsuit against both the borrower and the co-signer. If the court rules in favor of the lender, they can obtain a judgment against you. This judgment can lead to serious consequences, such as:

• Wage Garnishment: The lender can garnish your wages, meaning a portion of your income will be withheld to pay the debt.
• Bank Account Levies: The lender can seize funds from your bank accounts.
• Liens on Property: A lien can be placed on your property, such as your home, which can prevent you from selling it until the debt is paid.
• Damage to Credit Score: A default and judgment will negatively impact your credit score, making it harder to obtain credit in the future.

Defenses for Co-Signers

While co-signers are generally liable for the debt, there may be limited defenses or options to mitigate the situation:

1. Undue Influence or Misrepresentation: If you were pressured into co-signing the loan or misled about the terms, you may have a defense.
2. Statute of Limitations: Each state has a statute of limitations that limits the time period during which a lender can sue for a debt. If the time period has expired, the lender may not be able to pursue legal action.
3. Settlement or Payment Plans: You may be able to negotiate a settlement or payment plan with the lender or collection agency to avoid a lawsuit.

What You Should Do

If you are being sued or threatened with legal action, it is important to take immediate action:

1. Consult an Attorney: Seek legal advice from a qualified attorney who specializes in debt collection or consumer law. They can help you understand your rights and options.
2. Review the Loan Agreement: Carefully review the loan documents to understand your obligations as a co-signer.
3. Respond to the Lawsuit: If you are served with a lawsuit, do not ignore it. Failing to respond can result in a default judgment being entered against you.
4. Communicate with the Lender: Open communication with the lender or collection agency may help you reach a resolution without going to court.

Additional Resources

For more information about your rights and options, you can visit the Federal Trade Commission (FTC) website, which provides guidance on debt collection practices and consumer rights.

Conclusion

Co-signing a loan is a serious commitment, and default can have significant legal and financial consequences. If you are facing legal action, it is crucial to act quickly and seek professional legal advice to protect your rights and interests.