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Dear Bankruptcy Adviser,
My mom co-signed a car loan for me six months ago. I have to file bankruptcy soon. What will happen to her during
my bankruptcy? She owns no property and is 72 and poor.
-- Sean
Dear Sean,
In my line of work, we refer to clients like your
mother as "judgment-proof." The finance company
likely will not bother suing your mother and getting
a judgment when she has no property, limited income
and is over 65 years old.
This is not a guarantee that the company will not sue her. In fact, she must be very careful if she
does get sued because her bank accounts can be levied -- even if she gets Social Security and even if those funds
are protected from judgments. The bank is not obligated to determine the status of funds in an account.
However, this does not mean that
she is harassment-proof. Quite the opposite actually.
The finance company (or subsequent collection
agency) will call her at all times of the day
and make her feel like a bad person. Often, the
collection agencies will employ outrageous tactics
to convince her to pay this account.
I know people might read this column
and claim that I am advocating bankruptcy and
telling people to skirt their legal obligations.
I guess in some sense, I am. Unfortunately, the
issue is not the fact that your mom owes the money;
it is simply the impossibility of her ever being
able to afford to pay it back. I would love to
see some sort of federal credit counseling program
that protects debtors from lawsuits and harassment,
but also establishes a viable means to pay back
debt.
The fact is that people want to pay back the debts they owe. If there is one thing that the new
bankruptcy laws have proven, it is that those opposed to the laws were correct -- the vast majority of people file
bankruptcy for one of three reasons: loss of employment or significant downturn in income; insurmountable medical
bills or divorce. Sometimes people face combinations of these issues.
People that want to pay back their debts cannot do so at the terms demanded by the creditors. While
I understand that the creditor does not want to wait five or 10 years to be paid back, the debtor usually can afford
only so much.
In your mother's case, she needs
to protect her bank account. The creditor might
sue her, get a judgment and try to levy it. She
will either need to live on cash for the time
being or risk the unexpected depletion of her
bank account with limited warning. And this will
put even more pressure on you and your family.
Sit down with her and explain these options, then
let her decide how to proceed.
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