Cosigners can take the primary borrower to court if the primary borrower fails to repay the loan or otherwise fails to fulfill the terms of their agreement.
As you learn about getting a cosigner, you’ll see that they can help you get a loan you may not otherwise qualify for. Your cosigner effectively promises to repay your loan if you fail to make payments on your own. But can a cosigner take you to court if you fail to make your payments on time or in full? They can, and the circumstances that allow them to take the primary borrower to court vary by state and the type of agreement you have.
Let’s take a look at some common situations that can lead to a court date and what most borrowers can expect during the process.
When Could a Cosigner Take You to Court?
Working with a cosigner can help you qualify for a loan you otherwise couldn’t get, but if you don’t hold up your end of the deal, the cosigner can take you to court. The exact situations that allow a cosigner to take the primary borrower to court can vary by state and the type of loan they cosigned on. But most states allow cosigners to take primary borrowers to court in the following situations:
- Cross claims: If you default on or fail to repay the loan, the lender could sue the cosigner for the money owed. The cosigner may then be able to sue you for the money that the lender is trying to recover.
- Fraud: If you add a cosigner to your loan without their permission, the cosigner can sue you. This is a form of fraud and is punishable by law.
- Recovery of money they paid: Your cosigner may be able to sue you to recover the money they paid toward your loan after you stopped making payments.
- Any other breach of contract: Many cosigners use contracts that outline the terms they expect the primary borrower to follow. If you violate those terms, the cosigner may be able to sue you.
What Can the Process Look Like?
If your cosigner wants to take you to court, they’ll typically work with an attorney who will send you a notice of the lawsuit against you. You’ll have several ways to respond.
You could try to negotiate a repayment agreement with your cosigner and their attorney or try your luck in court.
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The judge will consider your financial situation and your case as they reach a decision. The process can take several months, and the judge’s decision will depend on your case and what’s common in your state. You could be required to repay your debt as well as any legal costs your cosigner paid while taking you to court.
Though every case is unique, you can expect a few things from the small claims process. Here’s a quick overview:
- The cosigner submits their demands and files the lawsuit.
- You’re served papers notifying you of the lawsuit and can respond by contesting the lawsuit or negotiating an alternative repayment method with the cosigner.
- If alternatives aren’t successful, you’ll go to court. The court process will start with pre-trial hearings that review what happened between you and the cosigner. If things aren’t resolved during the pre-trial phase, you’ll go to trial.
- The trial allows you and your cosigner to explain your sides of the story. The judge will then make a decision and let you know if you’re required to pay them, how you’ll have to pay them, and how much you’ll owe.
What Can Happen After Going to Court?
If the court determines that you owe your cosigner money, it can collect those funds from you in several ways. Two common methods include wage garnishments and bank levies.
When the court orders a wage garnishment, the money you earn from your job will go to your cosigner to settle your debt. The amount of money sent will depend on the court’s decision. In some cases, your entire paycheck may go to your cosigner until you’ve paid the debt in full.
When the court orders a bank account levy, the money in your account is frozen, and any funds in the account can be used to repay your debt. Keep in mind that the money you add to your bank account after the levy should be yours and will not typically be used to repay your cosigner.
What are the Alternatives to Going to Court?
Going to court can be stressful for you and your cosigner. Luckily, some alternatives could be a better fit. Here are a few other ways that you and your cosigner may be able to reach a resolution:
- Debt consolidation loans: Taking out a debt consolidation loan allows you to borrow money to repay what you owe on your original loan. You could use it to settle your debt with your cosigner, but doing so will make you responsible for an entirely new loan.
- Negotiate partial payments: When you negotiate partial payments with your cosigner, you’ll repay them what you can afford to repay over time, even if it’s only a portion of the original loan’s balance.
- Credit card debt forgiveness: Applying for credit card debt forgiveness lets you free up cash that you were using to pay down a credit card so you can more easily repay your cosigner. Not all credit card issuers will be open to this, and applying for debt forgiveness could hurt your credit score.
- Debt settlement: Settlements let you negotiate a lower payoff amount than what you truly owe, and once you pay that amount in full, your debt will be considered repaid. Depending on the situation, you may be able to negotiate a settlement with your cosigner.
These are just a few of the most common alternatives you may want to consider. An attorney can help you explore other alternatives.
Can a Cosigner Take You to Court FAQ
Here are a few frequently asked questions about cosigners and what happens if they try to take you to court.
What happens if you don’t pay back a cosigned loan on time?
The cosigner is responsible for making payments in full if you can’t do so. They’ll need to repay your loan on your behalf if you stop making payments or don’t pay it off in time.
How do missed payments affect my cosigner?
Missed payments mean your cosigner assumes responsibility for the loan’s payments and could see a drop in their credit score.
Do cosigners have to pay?
Cosigners are only required to pay if you stop making payments or miss payments on your loan. They help you get a loan with no credit history, and they guarantee to make payments if you can’t.
What power does a cosigner have?
Cosigners are legally required to make payments if you can’t, and they may have the power to sue you if you fail to repay your loan. They don’t have any rights to the items you purchased with the loan.
What legal rights does a cosigner have?
In many cases, cosigners have the right to take the primary borrower to court for failing to repay the loan. But their rights typically end there.
Can I sue the person I cosigned for?
You may be able to sue the person you cosigned for if they’ve failed to repay the loan or violated a legally enforceable agreement or contract the two of you agreed to.
How can a cosigner legally get out of a cosigned loan?
It’s possible to remove a cosigner from your car loan and other types of loans. Lenders will consider the primary borrower’s financial situation and stability when determining if it’s safe to remove the cosigner from the loan.
Will a cosigner show up on my vehicle title?
You will not see your cosigner on your vehicle title. As the primary borrower, you’re the official owner of the car once you pay the loan off in full.
Improve Your Credit to Unlock More Options
Can a cosigner take you to court? Unfortunately, they can. But improving your credit and strengthening your loan application before you apply can help you avoid needing a cosigner in the first place. Get a free credit report to see where you stand.
