I Co-Signed on a Mortgage loan, Primary Signer is now filing for Chp.7 bankruptcy. Need help!

[Anonymous]

Hello,

I wasn't sure what catagory this would fall under to post and it deals with both mortgage loans, and bankruptcy. Please don't yell at me if I put this in wrong forum.  I didn't know which to put it in.... Anyways....

As a brief background this is what happened.  I bought a home with my mother 2 years ago, in March of 2007. We have never missed a payment, never been late on a payment, and have a 100% perfect record with our mortgage payments.  Our mortgage is through US Bank, and my mother is the Primary Signer on the loan, and I am the Co-Signer on the loan.  Also, I'm 22 years old.

Ok, now with whats happening.  My mother, who is the primary signer of the mortgage loan, is knee deep in credit card debt.  She's got some $50k in credit card debt right now.  With recent mailings from the credit card companies saying they are slashing all her limits to what she owes, and also increasing all monthly payments from 2% to 5% (For example just one of her cards is going from $480 a month to $1,100 a month, just one example),  she has no choice but to file for Chapter 7 bankruptcy. 

Now, since she is going to file for chapter 7, and she is the primary signer on the house, I am really confused as to whats going to happen with the house, and with my stake in the house.  Not only am I the co-signer on the mortgage loan, but I am also a co-signer on the deed of the home.  My name appears with my mothers, on BOTH the mortgage loan and the deed to the house.  It's my understanding, that filing for chapter 7 bankruptcy like she is doing, is a total liquidation, so she will be cleared from everything, including the house!  Whats going to happen with me and my co-sign?

Like I said, we are current on the house, and have a perfect payment record with the US Bank mortage loan we have.  I am Hoping that if she files for chapter 7, and she is taken off the loan, then I will still be responsible for the house and the loan, and the bank will not take our home and foreclose on us.  I can pay the house, and with my home reliefed of all her debt, she'll still be able to contribute.  So having the mortage loan in my name, if she is taken off of it, and making me responsible for the loan should not be a problem.  We can still pay it.  BUT will the bank allow me to take it over?  Will the bank just drop my mothers name from the loan, and keep mine on their as the primary signer now?  I am really hoping this is the case, but I honestly do not know and need help.  I figure, the whole purpose of a **bleep** co-signer is for times like this, when the primary signer cannot pay, and cannot uphold the obligation to pay, then the co-signer will uphold the obligation to pay instead. 

I tried to include all the information I could.  If there is more information I need to give for a better answer please let me know.  As I said, I am 22, co-signed on a house, and am trying to figure out a way to not to hurt my credit via foreclosure.  If the bank lets me take over the mortgage loan, they will still get payed, and we have perfect payments with them.  I just need some help as to what is going to happen, and if my thoughts here with the bank are correct or wrong, and what exactly is going to happen to me and the house.

Please all help is appreciated!  Thank you very much!  I'm really confused and need to find a way to save myself and my house.

[Anonymous]

Has your mom approached the cc companies about closing the accounts and setting up repayment plans?  On top of this, you guys could attempt to get a loan modification to lower rate/payment to help offset some of the cc debt.  These are much better options than BK. 

[Anonymous]

The credit card companies aren't helping.  It's like they want to bury my mom.  They slashed all her limits, and they raised all her minimum payments.  And my mom was good to them paying on time.  Though she has a huge and stupid cc debt, she still had good credit because her history was top notch.

But now we get notices from the credit card companies trying to get us to do 1 of 3 things.

1.) Accept their terms and bury us financially where we can't afford to live.

2.) Not accept the new terms and close the credit cards, leaving my mom with no cards which at this point of her life and her debt she need some sort of back up funding source since she pays so much in cc payments per month she doesn't have money for anything else.

3.) File for Bankruptcy.

My mom has been going through this cc crap for a long time.  As you can imagine, $50k cc debt should take a long time to accumulate and pay off.  She has had deals with the cc companies to lower interest next to zero, and allow us some payment plans.  But now they are breaking everything off, and hitting us so hard that with these new terms we can not afford to live.  Even if she did set-up some sort of repayment, or even a chp.13, there is no way she can pay off $50k in debt.  It's not going to happen.  She is screwed and has to file chp.7.  Repayment will never happen because she'll be paying it until she dies because it's such a huge sum of money and we need to keep alot of money just to live off of instead of repaying cc's.  She's found herself at a crossroad of life where she has to relay on the last resort now.

But sorry, I didn't want to make it into a CC or Bankruptcy thread, since I did post it in a Mortgage subforum.  If she files for chp.7, what does it do to me as a co-signer of the mortgage loan?  We have perfect payment on the house and I want to take it over when she files for chp. 7 and drops the mortgage.  Will the bank allow me to take it?  As long as they get paid I can't see why not right?  I mean what the hell is the purpose of a cosigner if I can't take the house and resume payments if the primary signer drops out of the deal.... huh?

Anyways, thanks for the reply.  Hope I cleared some stuff up.

[Anonymous]

Too many folks don't realize what it means to co-sign a loan, I guess. 

I'm afraid, as co-signer, you're stuck. If the house goes into the BK or foreclosure, so do you. Or, your mom could release the home to you, and you can keep up the payments. If you can afford the latter, propose it.

[Anonymous]

Unless the loan company will allow you to assume the entire loan and remove your mom from the title and loan, you would have to go out and get a mortgage on the house.  That wold require down payment, closing costs, etc.  If your mom looses the house due to the BK it would probably destroy your credit as well.

The other issue is that the home is not likely worth what you paid for it if you bought in 07.  Unless you put alot down at purchase, there is a strong chance (depending upon your local market) that the loan is underwater.  That will make it harder to buy out the mortgage.  Also, at 22, it could be tough depending upon exactly what credit and job history you have.

I assume you don't have the cash sitting around for a new down payment and closing costs which even at best with an FHA loan would equal probably 10-12% of the home value or you would probably be better off having your mom use that $ to make some settlement offers on her debt.  If you are basicly on the verge of BK and they are aware of that, they may very well accept a greatly reduced amount.

Anyway, good luck figureing it out.

[teton]

Have you talked to a BK attorney? Maybe the house doesn't need to be included in the BK?

[Anonymous]

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@Anonymous wrote:

2.) Not accept the new terms and close the credit cards, leaving my mom with no cards which at this point of her life and her debt she need some sort of back up funding source since she pays so much in cc payments per month she doesn't have money for anything else.

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She needs to close the cards. This is the option to BK. It might be inconvenient. It might require her to change her lifestyle. This quote is the answer and you probably know it is.

[Anonymous]

I know BK seems like a way to relieve your mom of her stress but it's really not the case (not always at least). It could cause more stress on both of your lives and essentially ruin both of your credit for a good long while. Visit the Rebuilding Your Credit forum and read some of the stories there. It takes years and years to recover, and a whole lot of stress.

It is highly unlikely you would be able to keep your home and with tanked credit scores your options will be painful. You won't be able to buy another house for quite some time and even landlords pull credit scores these days so you may be forced to live somewhere undesirable. Do you have a backup living situation in place? It will also affect your ability to purchase vehicles, so transportation could become a problem if you need a vehicle at some point after the BK.

You should be aware that even though BKs "clear" your debt, when the debt is sizable like your mom's, sometimes it doesn't go away entirely and can haunt you for a while. Your mom could still have plenty of debt after the BK.

The reason people get co-signers to begin with is because the lender didn't believe they could handle the debt on their own. Possibly her credit wasn't good enough or her income wasn't high enough for the amount of debt she had. They felt she was a risk and wanted someone to share the risk with her, it increases their chance of being paid and decreases her chance of being able to purchase in the first place. Most people are unwilling to co-sign because it's simply not a good deal for them at all. If the primary doesn't default, the debt is still counted against the co-signer when they try to apply for their own credit. If they do default, the co-signer goes down with them. I understand your logic but that's not the way it works. Co-signers are not in place to protect the investment, they're in place to protect the lender. In your situation the lender is unlikely to risk it again unless you are able to purchase the home on your own (good scores, employment history, and income). If the lender decided you need each other to pay for the mortgage in the first place, they're unlikely to free either of you from the obligation.

You really want to talk to a BK attorney too. You can likely get a free consultation and perhaps have a better grasp of the consequences before making any decisions. Personally, i'd let the cc's go one at a time and keep trying to pay as long as i can while keeping perfect repayment on the mortgage. It will damage her credit (but save yours!) and she will be responsible to pay them back but it may also allow you to keep your home and not have a BK reporting. Buy yourself some time.

You deserve kudos for investigating this *before* filing BK or going delinquent on cc accounts. If you act quickly you may be able to salvage your situation. I hope you go on over to the RYC forums here and talk to others that have been in your shoes. They probably have some great insight for you on what to expect. Good luck!

[granny031350]

I guess I am the lone ranger here as I have filed both a chapter 7 and a chapter 13 bankruptcy. 

Since your mom and you are current on your mortgage payment NOTHING will happen.  The bank will not foreclose unless you quit paying.  So if you want the house, keep paying.

In a chapter 7, you are allowed exemptions.  Is there any equity in the house?  If so, how much, and what are your state's exemptions for housing?  If the house is exempted and you are current you have no worries whatsoever.  Keep making the mortgage payment and move forward.

If not all of the home's equity can be exempted, then your mom might be pushed into a chapter 13 where she would have to pay her creditors the amount equal to the non exempted amount.

But either way, your mom and you will be fine if you keep up the payments on the house.

[rockymtngrl]

Granny is right. I've been there, done that and got the t-shirt as well myself. You'll probably get better advice on this in the BK forum-I have'nt been over there to look at your post there yet.

It all depends on what state you are in (each state has different rules regarding BK). If you just bought the house 2 years ago and did'nt put down a large downpayment then you pretty much have no equity and should be fine. Just keep making the payments and most importantly DO NOT get behind in your payments. Then hopefully at some point in the future you will be able to refinance into just your name.