 Don't
repossess a co-signed car yourself
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 Dear
Bankruptcy Adviser,
I have co-signed for a car loan and now he is making payments late
and messing up my credit. Can I repossess the car? Can he repo it
back? What can I do to physically access the car?
-- Caren Carless
 Dear
Caren,
The first thing you have to understand is this: As the co-signer,
you are on the hook for this debt until it is paid in full. At risk
are your credit score, your available cash and the relationship
you have with your delinquent co-signer. You are in a position where
all three could suffer.
You also need to give up the idea of repossessing
the car on your own. Making efforts to cure a default on a loan
without aid of legal proceedings, aka "self-help," aka
"taking matters into your own hands," is not considered
a legitimate substitute to legal action in most states. The courts
have this rule because they want to discourage the kind of physical
confrontation that's possible when you attempt to repossess your
friend's car. So let the dealer or the bank repossess the car.
You might not come out of this squeaky clean, Caren,
but you might be able to minimize the damage if you choose wisely:
Choice 1: Wait and do nothing:
Your delinquent friend continues to pay late or not to pay. Your
credit will drop, the car will be repossessed and sold by the bank
and you will likely be sued for the balance owed.
Choice 2: Surrender:
Assuming that your friend is delinquent, you can notify the dealer,
have the dealer pick up the car and voluntarily surrender it to
the bank. You will have a repossession on your credit report and
you will be liable for the remaining balance.
Choice 3: Make the payments
yourself: Demand that he turn over ownership of the car and
you make the remaining payments. When the car is paid in full you
can sell it and recover some of your money.
Choice 4: Stay one payment
ahead: Call the car company, find out what amount is delinquent
(if any) and pay it. Then make one additional payment. Then, even
if your co-signer pays late again, any late payments the he makes
will still count toward the balance without hurting your credit.
You just need to keep in touch with the car company and always stay
one month ahead.
Caren, I think choice No. 4 is the best option right
now because what you want, I think, is for your co-signer to continue
paying as much as he's able for as long as he's able. If he stops
paying, I would go with No. 3.
It might seem like you can sue your friend to recover
some damages at some point in this process, but if your friend failed
to pay the car dealer then it is unlikely he would pay you. As well,
even if you get a judgment against your friend you'd have to know
how to enforce it.
So my advice is to go with No. 4 and try to maintain
your friendship as best you can. Friends are precious and there
are always bumps in the road of life. Don't let this one derail
you (if you can). Regardless, in the future, don't co-sign anything
for anyone unless it's absolutely necessary and you've eliminated
all other options.
Justin Harelik is a practicing bankruptcy
lawyer of counsel to Price Law Group in Los Angeles. To ask a question
of the Bankruptcy Adviser go to the "Ask
the Experts" page, and select "bankruptcy" as
the topic.
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