Help! Cosign Loan Disaster -- Guidance Needed!

[Anonymous]

This forum has personally done incredible things for my credit and now I'm trying to help my fiancee with hers. On the whole, she's incredibly financially responsible, but one bad decision eight years ago is haunting (and ruining) her credit.

She co-signed a $2100 student loan through CitiBank for a friend in 2008. The friend never paid and now the account is in collections at nearly $5k. The last payment was made in 2012, so it has three years before it could potentially fall off. Though, if her friend makes any attempt to make good on the debt, it would renew that 7-year mark (which is obviously a risk we are unwilling to take). 

Besides the fact that this reports as a collection, it also reports as a late payment over 30 times -- most of them 90 & 120 days. It's single-handedly ruining her credit.

We're now in the process of trying to secure a mortgage and build a life together. We have no problem paying the debt and I can do a BT to one of my 0% APR cards. My question is what is the best way to go about this to potentially remove it from the CR altogether? Is it possible to PFD with an installment loan? Should I try and settle the debt down from $5k to $2.1k where it started? Of course we want to save money, but I'd be willing to pay the full amount if we could get this off her report. The savings in interest on a mortage is tens of thousands.

Thanks in advance for any and all advice-- you guys are amazing! Feel free to PM as well.

[Anonymous]

Paying doesn't restart the 7 year mark of being on your reports.
You can do a pfd and see what they say. Possibly start low and negotiate to $2k.

[Anonymous]

PFD definitely sounds like a good idea, I mean why not?

Just curious - but why didn't your fiancee ever pay the loan and sue her friend in court? 

[Anonymous]

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@Anonymous wrote:

PFD definitely sounds like a good idea, I mean why not?

Just curious - but why didn't your fiancee ever pay the loan and sue her friend in court? 

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Because as crappy as it is to screw a friend over for $2100, it's even crappier to sue a friend. Even if no longer close, some things just aren't worth money.

[RobertEG]

A letter sent to the creditor offering to pay, and explaining the fact that she co-signed and thus was not the one who directly caused the lates and the CO, might result in a GW deletion on their part if she is willing to pay the remaining debt.  It is certainly a mitigating factor.  I would try a PFD.

However, first determine when the lates and CO are required to become excluded.

A CO has a required exclusion date based on the DOFD on the account, not any date of last payment or any other date.

The DOFD is requried to have been reported, and if not shown in the commercial credit report she was provided, have her order a full report from annualcreditreport.com, which will provide the actual DOFD.  The CRA will exclude at approx 7 years from the reported DOFD.

If the reported DOFD was sometime in 2009, then its exclusion date will be sometine this year.

[Anonymous]

I was under the impression that the most recent "action" -- be it a phone call admitting to the debt from a CA or a payment, or anything else, would restart the clock? When I think about that, it's more than absurd, but that seems par for the course. Can you explain what circumstances do 'restart the clock'?

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@Anonymous wrote:
Paying doesn't restart the 7 year mark of being on your reports.
You can do a pfd and see what they say. Possibly start low and negotiate to $2k.

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[Anonymous]

My fiancee, like myself and many of the rest of us before we found this forum, were blissfully ignorant on many of the financial decisions (and consequences thereof) we made. I'd like to sue the friend in court, but that would seem to be a waste of more time & money anyway. And unless the court ordered a garnishment of wages (assuming the now ex-friend even has a job), it seems unlikely we'd ever see the money anyway. Best to live & learn in this case, IMO.

[Anonymous]

Thanks for the insights, RobertEG. Certainly a PFD seems like the best option at this point -- any chance I can negotiate down the settlement and still have a chance at PFD? Any special language or script I should follow when trying to negotiate it?

As far as the DOFD is concerned, I want to make sure I'm understanding correctly: Let's say the date of first deliquency was in 2009, but there had been a payment as recently as 2012. Does that "reset the clock"? I seem to be misinformed about what the parameters for the 7-year window actually are.

If the DOFD is 2009, should I write letters to the creditor or the CBs themselves asking for a deletion based of FCRA? Sorry for the excess number of questions, your insight is apprecicated!

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@RobertEG wrote:

A letter sent to the creditor offering to pay, and explaining the fact that she co-signed and thus was not the one who directly caused the lates and the CO, might result in a GW deletion on their part if she is willing to pay the remaining debt.  It is certainly a mitigating factor.  I would try a PFD.

However, first determine when the lates and CO are required to become excluded.

A CO has a required exclusion date based on the DOFD on the account, not any date of last payment or any other date.

The DOFD is requried to have been reported, and if not shown in the commercial credit report she was provided, have her order a full report from annualcreditreport.com, which will provide the actual DOFD.  The CRA will exclude at approx 7 years from the reported DOFD.

If the reported DOFD was sometime in 2009, then its exclusion date will be sometine this year.

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[Anonymous]

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@Anonymous wrote:

I was under the impression that the most recent "action" -- be it a phone call admitting to the debt from a CA or a payment, or anything else, would restart the clock? When I think about that, it's more than absurd, but that seems par for the course. Can you explain what circumstances do 'restart the clock'?

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@Anonymous wrote:
Paying doesn't restart the 7 year mark of being on your reports.
You can do a pfd and see what they say. Possibly start low and negotiate to $2k.

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None. There are no circumstances that "restart the clock". None at all. Nothing, nada, zip.

[RobertEG]

Once the CRA has received the DOFD from the debt collector, then exclusion of their reported collection is done by the CRA.

The debt collector does not report any deletion, and is not involved in credit report exclusion.

The CRA must monitor the time since DOFD, and ensure that they exlcude the collection from any credit report they issue after 7 years plus 180 days from the DOFD.

You thus, once you have determined that the reported DOFD is accurate, deal only with the CRA regarding exclusion of the collection from your credit report.

The confusion as to any "reset" apparently stems from confusion regarding credit report exclusion vs. expiration of SOL.

They are totally separate issues.

Credit report exclusion is based, per FCRA 605(c), only on the time since DOFD.  The DOFD is a fixed, date-certain, which does not change.  The FCRA mandates credit report exclusion no later than 7 years plus 180 days from that date certain.  There is no reset of either DOFD or the 7 years plus 180 days statutory period.

The separate issue of how the period after which you can no longer be sued for the debt is governed by the statute of limitations under your state law.

The SOL can be reset under most states if the consumer makes a payment on the debt.