Cosigner's Remedies After Default on a Car Loan

[Cosigned]

This is probably going to be long, but I will try to keep it as short as possible.

I cosigned a car loan for my daughter a couple of years ago (which I now know was a HUGE mistake). Well, she defaulted on the loan, and never bothered to inform me she was having problems making the payments. The bank (actually a credit union) never bothered to try to contact me either.

She spoke with the credit union's "assistance recovery" office, and they convinced her to "voluntarily" allow the vehicle to be repossessed. They now hold the position that the repossession was in no way voluntary. Anyway, she allowed them to maipulate her into doing what they wanted (again, because she didn't come to me about it). Then, she went and bought another car. When she showed up with her new car and I asked her about it was when I found out about the repossession. Of course, if I had been checking my own credit like I should have monthly (and now do), I would have known when it first became 30 days late. I don't deny that I've made some mistakes in this process too.

Anyway, the credit union has just now attempted to contact me. I have a notice that I have a certified letter waiting for me in the post office, which I will pick up tomorrow.

In the mean time, I have spoken to the assistance recovery office myself, and have negotiated to re-take possession of the car by bringing the loan current (including fees and penalties), and by providing proof of 6 months pre-paid insurance on it. It will cost me nearly $3000 to do this, and in fact, I will have to dip into credit card money to manage it. In addition, It will be a definitely burden to take on this extra car payment.

Unfortunately, my 2 current cars are fairly new, and are both still considerably upside-down on their loan to value raitios, as is the repossessed car, so trying to trade in 2 of them for a single car would be difficult to impossible, and may not make much difference at all on my payment amount. On the plus side, my wife did NOT participate in the cosigning of the loan, so her credit has not suffered because of this incident.

As part of the negotiation, I got the credit union to agree to remove the repossession from my credit report once the loan was brought current. However, they would not give that agreement in writing, stating that they had no pre-printed form for such an agreement, and that anything they submitted would have go through their legal department, which they would not agree to (I assume because of cost). I did however, record the conversation in which they made the promise to remove the repossession from my credit report.

So my first question: Is the claim that they don't have the ability to give me that gaurantee in writing bogus? Are they just "telling me what I want to hear" to get me to do what they want (like they told my daughter to allow a "voluntary" repossession, and then claiming it isn't voluntary? And, if that is the case, will the recorded conversation be of any use to me if they fail to perform as promised, or does it mean nothing?

My second question has to do with my options, and what I should do.

First, if I do nothing and allow the repossession to stand, they will sell the car at auction, and I will probably still owe them around $10000-$18000, depending on how much they get for it. Is it possible for me to declare bankruptcy and simply re-affirm all my other debts (which are all in good or excellent standing, and I do not even want to discharge)? Is that even legal? Of course, my daughter is still the primary account holder, but they will not likely get much out of her. First, she doesn't HAVE anything, nor does she make very much money to garnish, and second, she will almost certainly file bankruptcy- this debt is not the only one that's in arrears by far. I certainly don't have 10-18K, not even in available credit, to pay the remainder of the debt. Will the credit union or whoever does the collection attempt to workout a payment plan? What would happen?

Second, if I bring the loan current, I will be hard-pressed to make the payments, and it will likely be at least another year before it will be possible to trade-in 2 cars to a single one. I will also have to use some credit in order to bring the loan current. We have about $2000 in savings, meaning I will have to put about $1000 on a credit card. I'm also wary about the way the credit union wants me to bring the loan current. They say they want me to deposit the money into my daughter's frozen account at the CU, and once that is done, they will unfreeze the account, and use what's in it to bring the loan current (there's already about $2500 in there, the loan is behind by some $4800, including insurance they bought when my daughter stopped paying hers last year). Is that a common practice, or is it fishy? I'm worried that they will simply keep the money and do nothing, keeping the account frozen. I'm also worried they won't keep their promise and remove the repossession from my credit report.

I have a feeling you will say my best option will be to see an attorney. If so, what kind? Bankruptcy attorneys don't seem to be too interested in this kind of thing (I've made a few calls). How would I find an attorney that could answer my questions and represent me if I needed it?

Sorry for being so long-winded, and thanks in advance for any help.

[aaron]

So my first question: Is the claim that they don't have the ability to give me that gaurantee in writing bogus? Are they just "telling me what I want to hear" to get me to do what they want (like they told my daughter to allow a "voluntary" repossession, and then claiming it isn't voluntary? And, if that is the case, will the recorded conversation be of any use to me if they fail to perform as promised, or does it mean nothing?

My impression would be that if they have the ability to promise you to remove the repossession from your credit history, they have the ability to confirm that in writing. Whatever benefit of the doubt you extend at this point, make sure you keep that recording.

First, if I do nothing and allow the repossession to stand, they will sell the car at auction, and I will probably still owe them around $10000-$18000, depending on how much they get for it. Is it possible for me to declare bankruptcy and simply re-affirm all my other debts (which are all in good or excellent standing, and I do not even want to discharge)? Is that even legal?

The new bankruptcy law may affect your situation - it will affect all pending bankruptcies, and makes it harder to obtain a discharge. Also, a bankruptcy can have a very significant, long-term effect on your credit history. Further, you should expect that the amount the car is sold for at auction will be lower than what you would get if you sold it yourself.

Will the credit union or whoever does the collection attempt to workout a payment plan? What would happen?

That's hard to say. They could do a lot of things, including garnishing wages and bank accounts, or attempting to seize and sell certain items of your property within the confines of the law.

Is that a common practice, or is it fishy?

Everything they are telling you seems fishy to me.

I have a feeling you will say my best option will be to see an attorney. If so, what kind? Bankruptcy attorneys don't seem to be too interested in this kind of thing (I've made a few calls). How would I find an attorney that could answer my questions and represent me if I needed it?

You need an attorney who knows about debt and collections law. You might try calling the local legal aid office, not for representation, but to see if they know of anybody in your area who might be able to help. You might also consider any state or local bar association's lawyer referral service.