Expert: David - 3/30/2009

Question
I know that in your profile you said you deal mostly with repairing credit, but maybe you can still help, since my question has to do with how not to hurt a co-signer's credit.

We have an odd situation. My fiance and I have a vehicle which is now worth about $10,000 and the loan that was taken out for it was $32,000. The terms were incredibly outrageous, but at the time we desperately NEEDED a vehicle and that was the only way. He took out this loan with the understanding, as they put it, that in six months we could refinance for lower payments and better terms. 1 and a half years later, they say they don't do refinancing period, nor can we refinance with another bank now since the vehicle's worth is so much lower than the loan's balance (which is now $30,000 since the interest rate is 19.45%). My fiance had his mom co-sign this loan and we have been very good at repaying it, so it hasn't been an issue.

Now, my fiance has just lost his job and we lost our house, which came with his job for free, so we are obviously not going to be able to maintain $756/mo payments for this vehicle. My fiance has thought about declaring bankruptcy, but he's afraid that in doing so, he will be hurting his mother's credit score since her name is also on the loan. Would this happen and if it would, is there any other way out of this without hurting his mother's credit, short of totalling the vehicle?

I hugely appreciate any advice you can give us!

Karen

Answer
Hi Karen,

The only way to not hurt the co-signers credit is to remove their name off of it.  That would require refinancing which seems unlikely in your scenario.  I wish i could give you something more, but this is the risk that all co-signers take.