Co-Signed Loan

[mcwjjm]

What is the name of your state (only U.S. law)? Ohio

Co-signed a $10,000 college loan for my xGF 4.5 years ago. I discovered she never made payments when I started receiving notices. She kept delaying, trying to get extentions but approaching five years hasn't paid anything on the loan as we agreed. When I was contacted the loan was now $15,000 in past due charges. I set up a payment schedule and for the last 8 months have paid a total of $2,800 on the loan. She wasn't working at the time but is working F/T now. I kept her informed and during a mediation session last Fall she agreed to start paying on the loan but when it came time for us to sign a document she walked out. The amount I'm seeking is more than I can recover in Small Claims Court and in April filed a complaint in Municipal Court. She filed her answer last week and for some reason mailed me a copy. She can dance around the issue all she wants with "loan in deferment", "mistakenly sent to collections" but the fact remains she hasn't paid anything toward a loan that's almost five years old. I contacted MC and was informed my complaint and her response would be "sent to the Duty Judge" for review to make a ruling to see if a hearing would be set. I've yet to be notified of her reply by the courts but since she mailed me a copy should I file an ammendment to my complaint immediately countering her claims or wait on the Judge's ruling first? Isn't there a pre-trial in these matters before the Judge would come to any ruling? TIA

 

[latigo]

It seems to me that you are taking a lot for granted here and without legal justification.

So let me ask you to explain the legal theory upon which you have framed your lawsuit.

In other words, what leads you to believe that you are entitled to seek contribution from the co-obligor for anything above what you may have paid the creditor in excess of one half of the total obligation? Your $2,800.00 is a bit short of $15,000/2!

It would be different had you simply guaranteed the note and became only secondarily liable. Then you would be subrogated to the rights of the creditor.

Because you signed on not as a surety or guarantor of the note, but as a principal obligor, there is no right of subrogation. The laws of suretyship do not apply between co-obligors.

By each signing as principal obligors you two became jointly and severally liable to the holder of the note. Not to one another, but to the holder of the note!

And as such neither obligor is entitled to contribution from the other except when they pay more that their ratable share.

Now, if you had a separate written, signed contract * whereby she agrees to reimburse you for anything you pay on the note, fine. That would be the basis for your cause of action. But you do not indicate the existence of such a written agreement.

And without such an independent written commitment on her part as the foundation for your cause of action you don’t have a provable cause of action for the $2,800!

How could a judge justify ordering her to pay you for what you paid the creditor when you actually owed the $2,800 to the creditor? That is, unless you could produce an agreement in which she agreed to reimburse you.

It’s only when more than the ratable share has been paid that the equitable principles of unjust enrichment and restitution kick in justifying an order of contribution.

This situation is fraught with legal complexities and no less the statute of frauds that prevents a person from suing another upon a promise to answer for their debts, unless there is a writing signed by the person to be charged.

 

[justalayman]

I think we need to have the OP define if he was a co-signer or a co-borrower. Many, if not most, people refer to a guarantor of a loan as a co-signer. A co-borrower would refer to a joint liability while a co-signer would merely be a guarantor should the primary signer fail to pay the loan.

Even this page from the FTC speaks of a co-signer as a guarantor and not a co-obligor.

Co-signing a Loan

I may not be right but I'm just sayin' we might want some clarification.


I do like latigo's post though. If it is applicable, he explained the situiation very well.

 

[mcwjjm]

I think we need to have the OP define if he was a co-signer or a co-borrower.

Co-signer. Not co-borrower. I never benefited from this loan nor was I ever expected to make payment by the beneficiary. As recent as last Fall she agreed in mediation to resume full responsibility of the loan and take over payments when she walked out after the mediator returned with the agreed entry document after our hearing didn't go her way.

 

[mcwjjm]

Received letter from Municipal Court. The Duty judge has directed our case to the Assignment Commissioner and we'll be notified of our scheduled hearing. In addition, like our previous custody case, this case has been referred to the Mediation Program. So we're back to where were - mediation - except instead of being introduced as a secondary issue [to my custody motion] the matter of the loan will be primary.

If she doesn't show for mediation it will look bad for her to ignore their process and if she does it will be interesting to hear her reasons for not following through on our agreement to resume payments last November! And who knows maybe she'll actually follow through and sign the document as an Agreed Entry.

 

[latigo]

You are just kidding yourself by thinking that whatever legal proceeding you’re in now will result in a practical solution to you position on the loan.

Suppose the court finds that you did not directly benefit from the loan and that she did in fact contractually agree to indemnify and hold you harmless? What then? What good would come of it? It would merely be a piece of paper with printing and it sure ain’t U. S. currency.

And it certainly wouldn’t change your status with the holder of the note and your personal liability as a co-signor - whether you are deemed a principal obligor/borrower or a surety.

You obviously allowed your emotions to cloud your good sense, but the bottom line is that if she doesn’t pay off the note – and there appears to be no indication that she will or is financially capable – then you are stuck with it!

In my humble opinion fooling around with this court case that doesn’t involve the holder of the note is meaningless. What you should be doing is insisting that the creditor treat you as a surety under California law *and not as a primary obligor and go after her and require that they exhaust there remedies against her before looking to you.

___________________


[*] California Civil Code Section 2832

“One who appears to be a principal, whether by the terms of a written instrument or otherwise, may show that he is in fact a surety, except as against persons who have acted on the faith of his apparent character of principal. It is not necessary for him to show that the creditor accepted him as surety.”

Section 2845. “A surety may require the creditor . . . to proceed against the principal, or to pursue any other remedy in the creditor's power which the surety cannot pursue, and which would lighten the surety's burden; and if
the creditor neglects to do so, the surety is exonerated to the
extent to which the surety is thereby prejudiced.”

 

[mcwjjm]

Update

Apparently I'm off the hook. Following up on latigo's advice [and getting nowhere] I was doing some research and came across a distinction between private and government guaranteed student loans. That the prior should have been dischargeable with my Chapter 7 filing in 2005 but not the latter. And since we filed days before the BAPCPA Act took effect on October 17, 2005 I'm no longer obligated.

My attorney originally told me the loan was dischargeable but when I signed informed me otherwise and I never read the entire Chapter 7 documentation until a few days ago. The loan I co-signed for is listed along with my other debts! I called him yesterday and he confirmed that a private loan should have been discharged with the 2005 filing and apologized for an misunderstanding.

I contacted my bank and put a stop payment on the auto-withdrawal. Then faxed a polite letter stating the misunderstanding, my dischargeable status and request to cancel our payment agreement along with a copy of the loan and the relevent portions of the Chapter 7 documents to the law firm seeking collections. I'll be curious if they continue to badger the co-signer rather than pursue the borrower of the loan. Perhaps the lack of urgency to pursue the other party conveyed to in our earlier conversations this week will change.

 

[mcwjjm]

Received judgement

Received judgement for the co-signed loan now what do I need to do to collect? Go through the courts again to garnish wages from their employer? TIA.

 

[SuperLitigator]

Co-signer. Not co-borrower. I never benefited from this loan nor was I ever expected to make payment by the beneficiary. As recent as last Fall she agreed in mediation to resume full responsibility of the loan and take over payments when she walked out after the mediator returned with the agreed entry document after our hearing didn't go her way.

If you got no benefit then why did you co-sign. You are going to be out 15K. I cannot believe that she is still not your boy toy. Maybe she wanted to buy a car & your credit was maxed out. Oh well, maybe you attny can bog through the bankruptcy laws ... we dont have the documents or anything other than 1 paragraph of what you have written. Good luck with this one but you may have to cough up 15 big ones.

 

[mcwjjm]

As I stated in my Update post, I'm off the hook on the loan I co-signed for. I received a judgement in my favor last week for the $3108.00 I paid on the loan, my question now is how should I go about collecting. If I had an attorney handling this matter I would ask them. I'm representing myself.