Tom McCutheon
Q: My mother signed a note at the bank for my nephew, her grandson, to buy a truck. I do not think my nephew has made a single payment yet he drives this $30,000 pickup without making a payment on it. My mother is not in good health and I want to know if her estate would be responsible for the debt. She is only a co-signer on the note.
Charles
Athens, AL
A: People often don’t understand the role of a co-signer for a loan. It seems that it is generally misunderstood to be a second place responsibility.
I want to be very clear in explaining that a co-signer is equally responsible for the debt. If they have more money and assets, they are going to be primarily responsible for the debt. I think that the intent, more often than not is that the person getting the loan will make the payments. Everyone involved in the transaction knows that the person getting the loan does not have sufficiently good credit to qualify for the loan by themselves. There is always a reason for that lack of good credit.
Sometimes those reasons are a new job, no credit history or a recent bankruptcy. Other reasons are a past history of late payments or non-payments. Given the right circumstances perhaps after a divorce or bankruptcy and based on the character of the person needing to borrow someone else’s credit, co-signing a loan can be a positive help for a person who is in need. The cases that I hear about are obviously the ones that don’t work out, and I have heard many of those.
Specifically, in answer to your question, first the nephew would be responsible after the co-signer passed away. Secondly, the truck is security for the debt and it would be repossessed and sold and whatever it sold for would be applied to the debt. Any balance left owing (known as a deficiency or a deficiency judgment) would be a debt of the estate. If your mother doesn’t have much of an estate or has done some estate planning such as deeding any property to her children while reserving a life estate and taking title to her own vehicles with a co-owner as an “or” such as “Jane Johnson OR Bill Johnson” then there would be little need to even file an estate. A creditor has the right to file an estate to establish their right to collect; it is also the true that the decision to do so is a straight forward monetary analysis. A bank will not spend the money to hire a lawyer if it is not worth their while.
Buckle up and drive safely.
2210 Helton Drive
Florence, AL 35630
256-764-0112
