Nervous CoSigner

[scit2005]

Nervous is actually an understatement for what I'm feeling right now.

I co-signed for one of my sons student loans a few years back. $12k He took the rest in his own name.

His loans were deferred for a time while he attended school and for 6 months after he left school. During that 6 months, he moved to another state, held a job for a short time and was let go. Unemployed.

I started paying the loan for which I'd co-signed while he was unemployed..and paid it for over a year. He was able to get a decent job and he took over the payments. He did however file a Chapter 7 BK to get out from under the other debt that had mounted during his employment troubles.


As far as I was concerned, all was well. Until today ...when Sallie Mae called me!
They called to tell me that "my" loan was delinquent..and I needed to make a payment of X amount to bring it current. I discussed this for quite some time...feeling certain they must be applying my sons payments in total to his other singular loans..and none to the co-signed loans. What I got in return from Sallie Mae was "you are the only name on this loan". Round and round we went as I tried to convince them that I"ve never taken a student loan for myself (I attended myself on grants)...and that the only student loans ever backed by me was this co-signed loan for my son. The woman claimed to have NO record of my son in conjunction with this loan.

Sallie Mae rep took some time to convince that there must be a glitch. I repeatedly asked for a supervisor of some sort to help her find the original loan info..but she never would get one on the line. Eventually..she says "oh I see there is a name change in Dec 2010". I told her I've had the same name for 23 years..and my sons name has never changed. She then said "oh, I see there was a Chapter 7 BK in 2010 and then the name change"

So I was able to nail her down to the following. They received notice that my son had filed a Chapter 7..and although he asked for no hardship..no adversary proceeding...it was just listed in the debts he owed..they took it upon themselves to take the loan out of his name with me as co-signer...and Put It Into My Name Only!

I asked if there was a legal department I could talk to..as I didn't understand how they could call this a default. If my son has not tried to get out of the debt..and has not defaulted, has continued sending them money...how could they legally do this to me? She had no answers...said she had no legal department at her immediate disposal, etc.

I requested that she get some help and call me back later today. In the meantime, I am beside myself with worry, as I myself am just now out of school, recovering from surgery and haven't even gained employment for myself. If my son had actually defaulted, I would step up as cosigner and do what I could to make payments. But I feel as though I'm being shafted somehow since he is in fact gainfully employed and willing to pay the co-signed loan along with his singular loans.

Any advice? Can Sallie Mae do what they're telling me they have done? Just remove him from the original loan and designate it solely in my name??????
Thanks..and I apologize for being long winded and overly anxious.
GV

[dumpinmydebt]

Filing for CH. 7 does not dismiss his responsibility for this debt. I do not see how they can legally take his name off. He would've needed to file a separate complaint, as you seem to already be aware of.

He needs to contact them.

[scit2005]

Thank you...that is what I understood as well, that he couldn't be discharged ..unless he and his attorney made some kind of separate proceeding..which he never did. Even the Sallie Mae rep seemed to understand this and agree with me..and yet she couldn't tell me why or how this was done or how to get it fixed. Now that they have it solely in my name (btw, something I've never been notified of until I got the call today)...they won't talk to him! Can you believe this? Its the craziest thing I've ever heard of. ::::sigh:::

[KeithDoxen]

Please do your best to find the original contract or promissory note or terms of agreement for the loan.

What you will probably find is language in the contract that allows Sallie Mae to essentially "default the loan" upon bankruptcy. This is a clause that exists in MANY private student loan contracts and this is perfectly legit. It may not be moral or ethical depending on how you look at it, as your son never missed a payment, but if this clause exists in the contract, and I suspect that it does, SM does have the right to default the loan.

Once the loan is in default, SM can go after any and all signers.

What makes this odd is that instead of going to collections, this loan continued to exist within the system as a loan that is ONLY under your name. You should definitely keep pushing to talk to higher-ups, as it's been my experience that SM is not in the practice of defaulting student loans upon bankruptcy, however this may depend on the nature of the loan, or it may be a case by case decision with them.

Feel free to get back to us with any other questions, but right now what you really need is more information, both from the note and from SM. What you'll probably have to do is convince them to put either you or your son into a payment plan for that loan.

[scit2005]

Thank you KeithDoxen.

I will try to get the original contract with terms. A side note, not sure if I mentioned in my OP...is when I was still at the point of trying to get SM to understand I was a cosigner and not the borrower...they mentioned a school that neither my son nor myself had ever attended. That only added to the confusion. But since they had the original loan date and amount correct, I had bigger fish to fry than to waste a lot of time on the school name she gave. I should revisit that as well though.

As for collections, I can only presume that its not late enough? It is one payment behind (read: sons payment apparently applied to his singular loans and no cosigned loan)...and the next payment is coming due soon. There is the amount of the one payment and a late fee due at this time. Perhaps not late enough to move toward collections?

There was already a payment plan in place, btw. That is the amount they are quoting me as having to pay.So I guess they are still comfortable with the amount..just changing who owes it? lol

I do understand your explanation about the possibility that the terms would allow for SM to "default" the loan if the borrower filed BK. What I don't understand is how that removes him from all liability or even having his name attached to the loan as a borrower. I mean in other words....he is being given a de facto discharge without ever having to seek a separate proceeding or winning a hardship. At least it would appear to be the case...and if that's the case, gee..why should anyone with a cosigner even bother to pay an attorney to seek a hardship discharge? See what I mean? Crazy.

Thanks again.

[KeithDoxen]

The only thing is, if the loan were in default, it wouldn't just be one payment past due. And your son's name wouldn't have been totally removed. It sounds like someone screwed up at Sallie Mae.

[scit2005]

Basically, my phone rang...there was some automated message for a few moments..then the Rep came on and said "Thank you for calling...." LOL! (hello? I didn't call you..you called me!)

She proceeded from there to say "your loan is delinquent and I need a payment of "x" amount to bring it current. I responded that my son has been making the payments faithfully since being employed and how shocked I am that he wouldn't tell me if there were an issue...and asked if she could tell me when he stopped paying.

This is when she came in with the "there is no one else on the account..just in your name...blah blah". It all cascaded from there. It took forever to even get her to the point of the name change and chapter 7 info (after my having asked 3 times for some kind of supervisor and begging her to please find the history on this account which would prove I was never the primary original borrower but rather a co-signer)

Once we established that they did in fact put this solely in my name after having received a Ch7 notice on the borrower...we moved onto my questioning how in the world this could be the case, since he didn't seek a discharge from the loan. Now ...it could be that she just erred in not using the word "default"...but that wouldn't change the fact that it is indeed only one payment plus late charge behind. I mean the amount is the amount..she in no way attempted to seek more $ or make new arrangements. So I do so hope you're right in that it sounds like someone at SM has made an error.

Thank you again.

[scit2005]

Thought I'd update this situation. Maybe it will help someone else in the future, should this happen to them

I was able to speak with someone more knowledgeable at SM yesterday. She cut right to the chase in terms of telling me that she was aware I was not the original borrower, but rather the co-signer. She further was able to acknowledge that it was receipt of notice that my son had filed CH7 BK that triggered their decision to change my name to primary borrower and remove his altogether. We had a brief discussion regarding the fact that he asked for no relief from the courts in this loan, nor was granted such. She understood that, but maintained that SM had the right to make that decision on their own "according to the terms in the promissory note.

I asked how I could obtain a copy of the PN, and was told to go to SM.com and could request it there. Okay, fine. But I took it a step further and requested to know what wording in the PN gave authority to SM to remove my son from all liability. (at no time did SM use the word "default" throughout any of this) She could not answer.

I presented again in the following way.
"My son asked the federal BK court for relief from credit debt, in fact using his indebtedness and obligations to pay student loans to bolster his very need for relief from the credit card debt. The court granted that relief, and the federal court maintains he is not relieved of his student loan obligations. Yet, SM, also representing the govt., says that in fact yes he is relieved and his co-signer is now primarily and solely responsible. Which governmental entity has the higher authority here? Is my son obligated, as the federal courts maintain...or is he released from obligation as SM now maintains?"

The response was..."hold one moment" A supervisor came on the line and I repeated the situation and my questions.

I asked him point blank:
"in the PN, does it state that should the borrower seek relief thru BK from certain debts, but not from student loan debt, that the co-signer will become sole and primary responsible party on the student loan?"

His response to me was:
"It won't be worded that way or explicitly, it will be implied"
He then went on to tell me that the quickest way to resolve this was to have my son send a letter of Re-Affirmation, claiming he wanted to be restored as original borrower with full intention to maintain financial responsibility and restore me as co-signer. He gave me the street address to send it certified versus the p.o. box address. I don't know that this restoration will be a certainty when they receive the letter, but I do hope so.


Additionally, since my son filed in Decemeber, he was advised that there would be a "stay" period until his CH 7 discharge, and he should not make his student loan payments during that stay period. This is how the account came to be one payment behind...as he followed that advisement and did not make any of his January student loan payments. His discharge is expected soon, although his attorney says the courts are running about a month behind what it typical..that its taking about 3 months to discharge now. In any case, my son sent me this payment plus late fee..and yesterday while on the phone with SM I paid it. So the account is current and the next payment is due March. Hopefully the discharge and the re-affirmation will have been established by that point. If not, my son will simply send the money again and keep it current.

Interesting side note. Upon SM answering my call yesterday, I got the schpiel about recording this call for training purposes, to which I agreed, no problem. But I also asked if it was okay for me to record the call. She said yes. Later during the conversations, when I started asking under what authority they've removed my son from liability and transferred solely to me, I was told " I cannot authorize your recording of this call". I asked why, why could they record it but I could not? She replied they only record for training,and she doesn't know why I can't, just that she was advised to tell me she won't authorize it. okay, fine. I did not record it. (in my particular state, I understand only one party to the phone call needs to be aware, that being myself, so had I never asked, I think I could have gone ahead and recorded the entire conversation). Anyhow...I thought that was interesting that they did not want me to record them answering that line of questioning.

So, for any of you borrowers out there with student loans, who have co-signers on any of your loans, tread carefully. Make sure you and your attorney go over the promissory notes on the co-signed loans and examine whether your BK will trigger this kind of situation in your case. You do not want a surprise call to co-signers.
Looked at another way, one could make the case that if you do have a co-signer and are a total louse (lol)...you could avoid paying your attorney to try to get you a hardship relief..and just get the de facto relief from SM! (sorry about the sarcasm but really, that's what it amounts to, imo)

Now that the reaffirmation letter is one its way to SM, this may in fact be resolved for us. Yet, I am still stuck on the distinction here between the federal court saying he is liable to this student loan...and SM saying he is not. I didn't ask, but wanted to ask " so..if I go file CH 7 myself, does my name just magically get taken off the loan too?" lol

[gml120]

I had almost this EXACT experience with KeyBank except I am the borrower, and I filed Chap 7. My cosigner (mom) got the same call as you did after my discharge. I was also under the same understanding about the "stay". Upon research I found out that all "stay" means is that they are not allowed to call/contact any party or proceed with a suit. That's it. Unfortunately, my loan actually went delinquent for so long without anyone's knowledge it actually defaulted and I've had to have my poor cosigner take out a home equity loan to pay the full amount. If I were you I'd call them whenever you get the chance (every day if you have to) to confirm, re-confirm, and re-confirm again that everything is alright and that they didn't charge it off. I don't think there is any way to bring it out of charge off. They can absolutely default the loan at any time they want due to the "if you file bankruptcy we can default the loan" clause. It doesn't have to be past due and they aren't required to notify you like any other kind of fair loan or even credit card. I also had a clause that said basically, 'if we think you lose ability to pay for any reason we can default the loan'. Also, seriously consider applying for ANY other kind of loan and paying SM whatever they want JUST to get it out of their hands. Even if the new interest is higher, even if it's just in your name, you can always write an agreement with your son on repayment, etc. There is no protection under any laws that I can find when there is a problem with these type of loans as of yet. And remember too, that they can change your minimum payment at any time for any reason they can come up with to any amount no matter how unreasonable you think it is and you have no protection from it. I would consider yourself lucky they bothered to call you at all before they defaulted it, if in fact, the loan is still in good standing and not charged off.