Dad co-signs car loan and it haunts him

Dear Senior Living Adviser,
My dad is 78 years old and has lost his house due to one of his daughters refinancing the house with a balloon payment of $30,000 that came due in October 2013. When he couldn’t pay it, he lost the house. Another daughter and I bought him a trailer in a 55-plus area.

This same daughter who refinanced the house had him co-sign on a van 12 years ago, and then she refused to make the car loan payments and gave the van back after two years. The lender went after her and she filed for bankruptcy, which was discharged last month.

Now the lender is suing my dad. He has nothing but his Social Security — no assets at all. What does he do about this? Please help or steer me in the right direction.
— Shirley Solutions

Dear Shirley,
While I’ll admit I’m struggling with how a daughter got to make decisions on how her dad refinanced his house, that’s not really the point of your letter. It reads like a dad who would do anything to help his children and has paid a high price for that level of support.

What your dad needs is an attorney to sort through this van issue. It’s hard to imagine the lender suing 12 years after the car loan closed. If the lender sues and wins a judgment against your father, it can look to attach assets, which he doesn’t have, or garnish his bank account.

The car loan should be well past its statute of limitations, but there may be mitigating circumstances that were created when your sister filed for bankruptcy. That’s why he needs to consult with the attorney.

If all he has are his Social Security benefits, he should be “judgment-proof,” making it a low-probability case for the lender to pursue a judgment against him.

Social Security benefits deposited in a bank account aren’t subject to garnishment by private creditors. The Bankrate article “Can Social Security be garnished?” explains it well.

“While the garnishment of Social Security benefits by nongovernment creditors is against the law, a troubling loophole has been the ability of banks to automatically freeze customers’ accounts and use the funds to pay creditors. Often, there was little effort to prevent Social Security funds from being included in that freeze, and the burden was on the debtor to prove that some of the funds paid out should be exempt.

A federal regulation that took effect in May 2011 aims to remedy the problem by requiring financial institutions to determine whether a debtor’s account contains Social Security benefits and other exempt funds. The federal government now applies an electronic tag to these funds when they are deposited directly. The bank must protect all tagged deposits made during the two months preceding the receipt of a creditor’s garnishment order.”

I suggest that your dad talk to his branch manager about his bank account to make sure that his Social Security deposits won’t be subject to garnishment, and adjust his accounts if that goal is in question.

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