Parents Who Co-Sign for Kids Often End Up Bearing Burden of Debt in Chicago
By the way the media spins it, you'd think borrowing money is essential to success. Perhaps this is why, despite difficult economic times, many parents are lining up to co-sign credit cards, student loans, and mortgages for their kids.
But while parents have the best of intentions, they may be doing more harm than good for their families. Many co-signers end up filing for Chicago bankruptcy in order to get their finances back on track.
There's a reason banks require co-signers for people without much credit history: they're high risk. There's no way for a lender to gauge how likely a young borrower is to make good on their payment promises.
According to Business Insider, three out of every four primary borrowers default on their co-signed loan.
The person you are co-signing for may be responsible and motivated, but that doesn't guarantee they will have the financial means to make payments, particularly with today's job market.
When you co-sign, you're not only vouching for the primary borrower, but you're also putting your personal finances on the line. If your child, grandchild, niece, or nephew doesn't pay up, the default will impact your credit score - and thus your ability to qualify for future loans.
When bill collectors come after the remainder of the loan, it is the co-signer who will be on the hook.
As a result, many adults today are facing foreclosure and rock-bottom credit after decades of staying financially afloat. Because the primary borrowers' credit scores will also be affected, many young borrowers are forced to start their adult life on the wrong financial foot. There are success stories, of course - but in many cases, co-signed loans are a lose-lose proposition.
If your finances have been pulled underwater by a family member you co-signed for, bankruptcy may be your most realistic recourse.
By filing for Chapter 13 bankruptcy, young adults can avoid defaulting on credit card debts by making arranged payments, preventing creditors from going after the co-signer (you). Filing for bankruptcy as the co-signer is a bit more complicated. First, the loan must be restructured to release you from liability.
While Chicago bankruptcy protection is not usually applicable to student loans, reducing other unsecured debts such as credit card balances through bankruptcy may provide relief.
If you would like to speak with a Chicago bankruptcy attorney about your debt situation, call the DebtStoppers Bankruptcy Law Firm at 800-440-7235. Contact us today for a free personal debt evaluation.
More Blog Entries:
Illinois Runs Out of Financial Aid for College, Increasing Student Debt in Chicago: March 29, 2012
Young Adults Needing Financial Advice May Consider Bankruptcy in 2012: January 10, 2012
Additional Resources:
Why Co-Signing For Your Kids Is a Terrible Idea, by Tara Struyk, Business Insider