Cosigner for Defaulted Student Loan is in Bankruptcy and has Threatened to Sue

**truthbtold** · 10-16-2010, 10:30 AM

My question involves bankruptcy in the state of:

My question involves bankruptcy in the state of: New Jersey

So this is a long and detailed story/question but please bear with me if you will.

I have a private student loan in which a family member co-signed for me. Myself along with the rest of my family have had a major falling out with her due to her being mentally unstable, violent, irrational, etc. (This may not seem relevant as far as the legal aspect goes but it serves to explain details of her actions later in the story). Anyway, about 2 years ago she filed a Chapter 13 Bankruptcy, my loan was included in her bankruptcy and I was never notified. I was laid of from my job about a year ago. After a few months I became unable to make payments on this loan and filed for an unemployment forebearance. Since the forebearance application I had not received any more bills and assumed the forebearance was granted. A few months later I recieved a small claims court filing from my co-signer claiming that I owed her the full months payments for the 4 months that I owed. That is when she informed me that she had filed a chapter 13 bankruptcy and that I should be sending her the full payments each month so that she could pay the student loans. I tried contacting the loan servicer and was informed that they couldn't discuss my loan because it was in bankruptcy status. I got very scared about being sued since I had never been sued before and just sent my co-signer a money order for the full amount she requested and noted "Settlement In Full" on the money order. We both filed with the court that the claim been settled out of court and the case was dismissed.

Fast forward to last week and I get a letter from the co-signer informing me that she will sue again if I don't send her additional money. At this point I got very frustrated and decided to physically go to the loan servicer and beg for someone to explain to me what is going on. When I got there they at first told me that they couldn't do anything because of the bankruptcy. After more begging they finally got a person from the legal department to talk to me. Here I found out some very interesting information. It turns out that my co-signer had been calling them numerous times and demanding they put me and only me in default while she is still in chapter 13. The legal services person explained to her that, because she put the account on her chapter 13, they cannot come after me or her for payments until the stay is up. (It turns out that the same person I spoke with in person had also talked to my co-signer numerous times previously and remembered her for her "abrasive" attitude). As it was explained to me is that the account itself is in bankruptcy. As a result, the loan servicer will not attempt to collect, report negatively on our credit, or put the loan in default for as long as the stay is in place. According to the phone notes, my co-signer had said that "it's not fair that I benefit from her bankruptcy filing."The legal services person then informed her that she could go to a judge and ask that the account be removed from the bankruptcy to which my cosigner replied "if I do that my bankruptcy can be discharged and I will lose it." I was then informed that as long as the bankruptcy is in place, they will not entertain a forebearance request because they are not demanding payment anyway. I was then told that her bankruptcy trustee had been sending in payments of $33 a month. This is interesting because my co-signer is demanding that I said her the amount of $153 a month. Plus, I already sent her the settlement money the last time she sued.

Here are the issues I am having.

1.) I'm not sure I should have even sent here the money she requested last time. But, because I did, she accepted it as a settlement and cashed it as such. After looking online, I have discovered that under something called "res judicata" one cannot re-sue someone for an issue once it has been settled. Does this make sense?

2.) As a co-debtor, shouldn't I have been notified either by the co-debtor or the trustee that this account was placed in a chapter 13 bankruptcy when it happened?

3.) I cannot even get a financial hardship forebearance considered while this is in bankruptcy. simply cannot afford to make the payments at this time.

4.) If the co-signer does take this to small claims again, should I go to court this time? Can I counter sue for the money I already sent? Would a judge even hear a case about an issue that is already documented as settled? or for that matter, an issue that is currently in bankruptcy. The legal services rep at the student loan services center has agreed to give me notarized statement regarding what she had already told me in person and provide the phone records of what was explained to my co-signer when they spoke.

Any knowldgeable advice is greatly appreciated!

Regards

**Mr. Knowitall** · 10-18-2010, 07:12 PM

Your cosigner is entitled to recover from you the money she's paying toward your debt, but (a) only in the amount she actually pays and (b) it sounds like, under the circumstances, the money should be going through the trustee as opposed to directly to the cosigner.

I'm not sure why you, as a non-creditor, believe you would be entitled to notice of somebody else's bankruptcy. If you were paying your loan per your contract it wouldn't be an issue. You've already been told that the effect of the present situation is tantamount to forbearance.

If you are sued, you should defend yourself against the lawsuit. Otherwise you can expect the plaintiff to get a judgment by default in whatever amount she is requesting.

**truthbtold** · 10-18-2010, 10:45 PM

Thanks for you input! Just to clarify a few things:

-The reason I was under the impression that I should be notified about the account being put in chapter 13 status is because the legal representative at the loan service advised me so. As I understand it, even while I was making the full payments of 153 each month, her trustee was also sending in a payment of 33 each month. Why can I be sued for that additional 33 dollars that her trustee was sending in when at the time I was not even aware of the bankruptcy. I was simply making the full required payments as I always had. It wasn't until after I was laid off that I was having trouble and needed to apply for a forbearance. By this time, her bankruptcy had already been in effect for a year without my knowledge. A notification from the co-debtor or the trustee avoids this kind of confusion. Thus, what the legal representative told me about needing to be notified makes perfect sense to me, but then I'm no lawyer. By your logic, I could be successfully sued even assuming I never got laid off and continued making every full payment. Is that right?

-The legal representative also told me that it is very difficult for one co-debtor to succeed in getting a judgment against another in court unless there was a separate promissory note written up between myself and my co-debtor (there was not). He pulled out the promissory note that we both have with the loan company and pointed out that my co-debtor agreed to the terms on the private loan co-equally with myself and is equally responsible for the account. I'm not trying to weasel out of anything of course but that is simply how he explained it to me.

-The loan is NOT IN DEFAULT as I see you changed the title of my thread to indicate.

-I am much less "scared" about the prospect of going to court than I was previously after speaking to the loan company's legal representative directly. That said, I'm still unsure of what to expect in the outcome. I am having trouble seeing how I can be held responsible for my co-debtor putting this account in her bankruptcy and as a result I cannot seek the opportunity for forbearance privileges that would normally be afforded me. The way it sounds, I am barred from getting a forbearance, however, if my co-signer wants to just go ahead and make payments on the loan she can go ahead and sue me(as she is threatening to do) simply for the sake of being vindictive and she will get a judgment against me. As I mentioned previously, she is only doing this because, as she told the loan company, "it's not fair." I don't have the money to pay the loan company right now let alone to pay her simply to appease her vindictive behavior.

I'm not trying to take advantage of the bankruptcy status in any way but I really feel like I'm stuck with it as my option for forbearance is off the table for as long as the bankruptcy is in effect.

**Mr. Knowitall** · 10-18-2010, 11:58 PM

It's important that you share all the relevant facts up-front, as if you change the story as we go along you will do little but create confusion. Yes, new facts can affect the relevance of information previously provided. Beyond that I suggest you learn the meaning of the word "default" and also that you avoid distorting what has previously been said. If in fact, despite your telling us that you lost your job and couldn't afford to make payments, you did not miss any payments, we would have no way of knowing why your cosigner or her trustee believed they were under an obligation to pay toward your debt - you would have to investigate and tell us.

In terms of forbearance, as you've indicated, you are receiving the effective benefit of forbearance right now. You are also free to apply for forbearance when the stay is lifted. So I'm not seeing that you've suffered any harm.