Beware when you are asked to cosign for someone. Yes, it can be difficult to say “no” to them. They’re family. They’re a trusted friend. They’re someone who’s close to you that’s trying to get back on their feet. And they come to you for help.
When you become a cosigner for someone, you’re taking on the responsibility that they’ll be good on the debt. In California, this can be a risk even if you’re on the title or pink slip with them, because any accident or damage the driver incurs — even if uninsured — can be your responsibility. Suddenly, you are on the hook not just for the car loan amount if your coborrower defaults on the car loan or car note, but you can be liable for any property damage or medical bills as a result of anyone driving and then crashing your coborrower’s car.
I had someone visit my office last week. A 18 year old girl with her mom. The daughter, in a moment of inattention, rear-ended the car in front of her. Somehow, she wasn’t insured. But mom cosigned for the loan, and mom was also on the registration. Suddenly, both are responsible for the vehicle that got crunched and mysteriously totalled. Suddenly, both are on the hook for any medical bills from the daughter smashing into someone.
Who should file bankruptcy? The daughter? They’ll just come after mom. Should mom file bankruptcy? Why not get a judgment against daughter? She’s 18 and has her best earning years ahead of her. The judgment can grow with penalties and interest and follower her forever until she becomes an adult, owns a home and gets a real job.
There can be serious headaches when you take the chance to cosign for someone’s debts.
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