Expert: Regan Shinski - 9/16/2010

Question
I purchased a camper for my sister (mistake, I know) that she and my brother-in-law were making the payments on.  They failed to retain insurance and it burned leaving about a $21K balance.  The bank asked for immediate payment on the loan and would not accept any further payments.  We do not have the balance and since they refused to take payments, it is currently ruining my credit.  I have gotten notices from lawyers soliciting that mention a judgment.  I have not been served or had any real notificiations otherwise.  In the meantime, the bank has offered us an immediate settlement of $11k.  I am a homeschool mom with no income and my husband refuses to pay for my sister's debt.  What will a judgment do to me and what is the process?  Also, my brother-in-law says that if they get a judgement, nothing happens and the bank gets paid somehow.  I thought that the bank would put a lien on my home (I am on the deed but not the loan) for the full amount if we don't settle.  Is that true, or can that happen?  Pleasse help.

Answer
Hi Jennifer:

First thing:  your brother-in-law is wrong.  They may get a judgement but they won't be paid "somehow" they will be paid by you.

Secondly, your husband should be more concerned than he appears to be.  This can greatly affect HIS credit and purchasing power in the future.  Depending on what state you are in, they can seek legal action against him if the debt it deemed a marital debt in a community property state.  Even if not in a community property state, the judgement process can affect the house, your equity, and financial stability.  ANY joint assets - checking, savings, personal property, - may be at risk.

Where is the camper?  Is there any value in it at all?  This can/should be sold or given back to the bank.  Any value from it should be used to offset the debt - even scrap value.

The bank's best option is to sue and get a judgement.  This is what you want to avoid at any cost.  A judgement gives them the hammer of placing a lien on real estate, confiscating bank accounts, garnishing wages, and even having the sheriff confiscate personal property for sale at auction to pay the judgement.  A judgement likely would be for the full amount plus court costs, interest, and attorney fees.  The actual process of going to court varies slightly by jurisdiction but, in general, you get served court papers to appear.  You eventually appear or a default judgement is granted against you.  If you go, it's basically a trial.  They present their case, you present yours.  Based on what you told me, you would likely lose, but if they don't have their paperwork in order, you can win.  It's your choice and your cost if you choose to use an attorney.  There are options to delay, countersue, and use discovery to get information but this also varies by jurisdiction.

You can enter into a settlement at any time.  It's simply a matter of negotiation.  They are offering one time $11k, you try and get them into a payment plan or for much less.  I can't give specific advice here because it really depends on the creditor.  However, you have more negotiating power when the bank thinks they will get nothing else from you.  The worse you project your situation, the better.  However, for this amount, the bank is less likely to give up their power in a judgement unless you give them something significant in return.  Remember any letters you send them, calls you make or other information you give them may be used against you in the court trial, so be careful.

Another option is bankruptcy.  This can discharge the debt but you have to qualify.  State laws, household income and other factors play into this so you really need legal advice on that matter.  Bankruptcy ruins your credit for ten years.  A judgement for at least seven, possibly longer.

Finally, you should consider a lawsuit against your sister and brother-in-law.  You need to be able to prove the debt was their's, which should be pretty easy.  Police reports, previous payments they made, verbal contracts, common sense evidence all play into this.  just like the bank can get a judgement against you and use the collection techniques I mentioned above - garnishment, attack bank accounts, etc., you can do the same thing against them.  It will not prevent the bank from pursuing you, but it could help you get money from them to pay the debt.

Good luck, I hope this helps.  Sorry you are in such a situation for trying to help your family.

Regan