 Dear
Dr. Don,
My wife was diagnosed with multiple sclerosis about six years ago. I had to declare bankruptcy because of the doctor bills. I want to refinance my home and pay off the bankruptcy but can't get approved, as I was late making a couple of bankruptcy payments last year when she had a heart attack.
My son has excellent credit. If he co-signs with me, could I get approved? If so, would he have to report the payments as rental income on his taxes? I could let him claim the interest on his taxes, as I don't need the interest for my taxes.
-- Jim Juncture
 Dear
Jim,
You're not alone. Medical expenses are one of the most common reasons that U.S. consumers file for bankruptcy protection. A 2005 study reported that about 30 percent of people who filed for bankruptcy did so because of an illness or injury, even though many of them had health insurance when they first got sick.
With a Chapter 13 bankruptcy, you hold on to your assets and set up a court-approved payment plan for your unsecured debt. The missed payments last year could have triggered a motion to dismiss your bankruptcy case. If you don't know where your case stands, you should talk with an attorney.
When talking to the attorney, also discuss the pros and cons of taking out a home equity loan to pay off your bankruptcy. One of the advantages of a Chapter 13 bankruptcy is the discharge of remaining eligible debts at the end of the payment plan. To go through all this and lose that advantage may not make sense. That's why you need to talk to an attorney.
If your son co-signs the mortgage with you, he becomes liable for the payments if you don't pay. You still own the place and have a loan outstanding. There's nothing for him to report on his taxes -- no rental income, no interest expense.
The Federal Trade Commission, or FTC, facts for consumer's guide "Co-signing a loan" is recommended reading for your son prior to him co-signing a loan. He'll be taking on a credit risk that a professional lender would deem too dangerous. That should give him pause. It will also impact his ability to access credit.
Having your son co-sign the loan will improve the odds in getting the loan approved, but I can't tell you that it will be approved. That decision is based upon the loan originator's underwriting standards for income and other factors besides his credit score, like the terms of any existing first mortgage.
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