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THREAD - my first instalment of my shortlist of things one should know to be financially 'literate' (a silly term) #FinancialLiteracyMonth2020 #FinLit2020 : Joint debt/co-signed debt. (link at the end)This is probably the most commonly misunderstood consumer debt issue that I 1/
and my colleagues encounter. Since so many consumers who are in financial trouble use co-signators, a lot of joint debt is brought along to us in any given basket of credit problems.
We see all types of joint debt: mortgages, car loans/leases, apartment leases 2/
We see all types of joint debt: mortgages, car loans/leases, apartment leases 2/
(we’re seeing roommates fleeing from apartments during COVID & leaving the remaining roommate stuck with the full lease), business loans & leases, even student loans. But most common are credit cards and unsecured bank lines of credit. Inevitably, the debtor is only vaguely 3/
aware – if at all – of the consequences of default in such matters. The co-signator/guarantor is on the hook for the full 100% of the outstanding balance – not 50/50, and they are certainly not off the hook entirely.
What is joint debt vs co-signed debt? Nothing. It’s not 4/
What is joint debt vs co-signed debt? Nothing. It’s not 4/
“or” – call them the same exact thing. The way it is SOLD or marketed to clients is deceiving – lenders imply that the co-signator is merely enabling you to get the loan that you otherwise wouldn’t have (true) without their signature, BUT, they don’t go out of their way to 5/
emphasize that the co-signator is a join borrower – and therefore entirely legally responsible for the loan if you default. “But my parents are just co-signors – they aren’t joint on the debt.” – every week I hear this.
What happens to joint (co-signed) debt in an insolvency 6/
What happens to joint (co-signed) debt in an insolvency 6/
proceeding? This is a REAL problem; now you cannot get rid of your MORAL debt, just the legal debt; and this affects family and friends very negatively. If you file a bankruptcy or a proposal on joint/co-signed debt, the other party becomes fully legally responsible for 7/
any outstanding balance. That is why lenders are so aggressive and eager to get co-signators on any debt. Now they have two names to pursue instead of one. And people always say “Well, I’ll just have my dad’s name taken off it before I sign.” Now why would the bank do that? 8/
And just because your bankruptcy or proposal legally releases YOU from the debt, they co-signed party won’t likely be very happy to be stuck with it. If it is a family member or a friend, in order to keep in that person’s good books you will likely have to offer to pay the 9/
minimums for them, which then reduces the advantages of the insolvency proceeding.
Caveat emptor. https://www.hoyes.com/blog/a-complete-guide-to-joint-debts/
Caveat emptor. https://www.hoyes.com/blog/a-complete-guide-to-joint-debts/
