Question: I signed a private student loan for my daughter in 2006. Shortly afterwards my health deteriorated and I was granted retroactive disability benefits from June 2006. I have not worked since June 2006 and my only income comes from my Social Security disability benefits and my retirement benefits as a federal employee. Both agencies (Social Security & US Office of Personnel Management) judged that I was disabled.
Unfortunately, my daughter ignored, and continues to ignore, her responsibility to make payments on this loan and now they come to me for payment. I was able to make some payments on the loan, but I am no longer able to make any payments. I have explained to the bank that I have a limited income due to disability, but they keep calling me asking for payment and I continue to explain to them that I can not send them something I do not have. Is there any way I can get out of this loan or do you have any other advice for me?
Answer: In general, when you co-sign a loan like this, each co-manager is responsible for the full amount of the loan. To see how you can be released as a co-signer, “get a copy of the loan promissory note. This is the document that sets out the terms and conditions of the loan and should include the provisions for the release of a co-signer. In most cases, the lender requires the loan to be current, among other things, before granting the release from the co-sender, but it’s worth exploring, ”says Greenspring Advisors financial advisor Zack Hubbard.
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Usually, a co-signer release requires the principal borrower to sign the co-signer’s release, and the lender must also approve the co-signer’s removal, which can only be done if the borrower proves that they are able to make payments. You should also check the terms of your loan to see if there are any disability provisions. Only the total and permanent disability of the main borrower can allow forgiveness, but read the fine print to see.
Unfortunately, there is often no easy way out here, as you have co-signed the loan, which makes you responsible for repaying it. “Your daughter is the key to the solution. “You should keep trying to get her to contact the lender to come up with some sort of repayment plan,” says certified financial planner John M. Piershale. Adds Anna Helhoski, a student loan specialist at NerdWallet. “If your principal borrower refuses to pay off the debt you have co-signed and you are also unable to make a payment, your only option may be to negotiate with the lender. If your lender refuses to comply, file a complaint with the Office of Consumer Financial Protection. “While negotiating, try to pay at least the minimum monthly payment to keep your loan in good condition.”
Lawyer advice and repayment of student loans in case of bankruptcy
Matthew Jenkins, a certified financial planner at Noble Hill Planning, says this situation probably requires a lawyer. “It is possible that your daughter will remove you from a co-signer, but this would require your daughter to refinance the loan and this does not seem likely in this case. “As it is a private loan, you also have the option of removing yourself as a co-payer through the bankruptcy process, but this is a long, complicated and costly endeavor and there is no guarantee that a judge will agree with your point of view.” Jenkins.
However, it may be worthwhile to consult a bankruptcy lawyer. “To see if they can help you get out of debt because of your disability,” says certified financial adviser Lisa Weil. If you have already qualified for Social Security disability benefits, this is a sign that you are facing a serious disability and that your resources are already quite limited – something that can help you get out of your mortgage (although note that this it is difficult to do).
“Unfortunately, this kind of scenario is not at all unusual and while I realize that this particular ship has already set sail, that is why I would try to prevent any approaching retirement from signing up for a loan like this,” says Weil. . But there is one incredibly positive thing to note, according to Piershale, is that your Social Security benefits may not be eligible to garnish with private student loans as they would with a federal student loan.