Co-signed student loan- Sue the borrower?

[pb4uski]

Something to look into: if you have not yet paid the loan off, you can offer the bank payment in full in exchange for an assignment of the note to you. In other words you buy it from them similar to how mortgage companies sell notes to each other. The benefit is that you now own the debt outright and can take any number of actions to collect. One option would be to turn it over to a collection service. This strategy will likely only work if the loan was taken through a bank and not the student loan program. Also, if the debt is already paid off, it probably was stamped paid and they likely no longer have the documents. I used to work at a bank and we would occasionally have co-signers request to purchase the note. We always accommodated these requests. Lastly, regardless of the route you take to collect, you need to be mindful of the statute of limitations. Your time to take action is limited by law.

If you do this and are unable to collect any money, does the bad loan turn into a tax deduction?

That would be a question for an accountant. Might be able to file a 1099-C with the IRS, though. The niece would then owe taxes on the unpaid loan, which is considered income to the IRS.

I like this idea since you're going to get stuck paying anyway since it puts you in the drivers seat on collecting... your niece has a direct legal obligation to you since you now own the note. Due some due diligence but I think you might be able to record a capital loss just like you would if you purchase a bond and it turns out to be worthless and the harvest gaisn to offset the loss or use the loss against ordinary income for up to $3k a year.

 

[Texas Proud]

Since the original debt was 10K and interest has ballooned it to 22K , I'd suggest offering the bank 15K to buy the debt in cash.
Basically knock some of the cost off, while getting the debt.

After all, OP could die, move to Argentina , be bankrupt , and any number of factors that mean the bank is not getting their money.

But the bank will get their money from OP... they do not care what happens to the borrower....


It is always worth a try though....

 

[14thMed]

OP here, I want to thank everyone for the thoughtful possible solutions. I will start working to see if any will work for this situation. Al

 

[travelover]

OP here, I want to thank everyone for the thoughtful possible solutions. I will start working to see if any will work for this situation. Al

OK, if you take my suggestion the guy's name is "Louie".

 

[14thMed]

Student loan

A lot has happened since I posted last. DS and my DM passed away. She was 94 so it wasn't unexpected. DM had a house that is in my name with the procedes to be split .I'll leave it to you to figure out why it is in only my name.
After the funeral DS and I sat down and I told her she needed come up with the 22k payoff of the student loan. I gave her until September 1st. Repeating several time I wasn't the bad guy DS daughter was.
So here is the sticky part. 3 months ago DS's DH had a stroke. He is 71. DS at that time brought up about them moving to DMs house from their 2 story. I said we would talk about it but it never happened. A week after the funeral DS's son(who actually had been living in the DM house) called and asked to buy the property. I gave him the friends and family discount. So it looks like I will be getting my share.plus the student loan payoff and my half of the repairs I paid for when DM moved out. DS won't be getting much.
Of course, DS has not communicated with me since the funeral. Al

 

[Jerry1]

DS and my DM passed away.
Of course, DS has not communicated with me since the funeral. Al

What am I missing?

 

[14thMed]

What am I missing?

I guess that wasn’t very clear. Just our mother passed away.

 

[Jerry1]

I guess that wasn’t very clear. Just our mother passed away.

Just making sure. Sincere condolences in the passing of your mother.

 

[braumeister]

Sorry for your loss. But it sounds as if you dodged a bullet there.

 

[pb4uski]

.... Of course, DS has not communicated with me since the funeral. ...

Sounds like a good outcome.

 

[Texas Proud]

A lot has happened since I posted last. DS and my DM passed away. She was 94 so it wasn't unexpected. DM had a house that is in my name with the procedes to be split .I'll leave it to you to figure out why it is in only my name.
After the funeral DS and I sat down and I told her she needed come up with the 22k payoff of the student loan. I gave her until September 1st. Repeating several time I wasn't the bad guy DS daughter was.
So here is the sticky part. 3 months ago DS's DH had a stroke. He is 71. DS at that time brought up about them moving to DMs house from their 2 story. I said we would talk about it but it never happened. A week after the funeral DS's son(who actually had been living in the DM house) called and asked to buy the property. I gave him the friends and family discount. So it looks like I will be getting my share.plus the student loan payoff and my half of the repairs I paid for when DM moved out. DS won't be getting much.
Of course, DS has not communicated with me since the funeral. Al

Sorry to hear about your DM. But living to 94 is pretty good.





Just curious since you posted something that was contradictory.....



You say the house is in your name... was it your DMs house our yours?

If it was your DMs house, how is it in your name?
What do you mean by the proceeds are to be split? What said they were to be split?


The reason I ask is that at the end you say you are getting the student loan payoff from what appears to be the proceeds of the house... but if it is yours why would there be any split?


And if there is a legal reason to split I do not think you can just offset your debt with the proceeds of the sale.... IOW, they are two separate transactions... your DS could sue to get her money due to her and you would have to sue her to get yours.... I do not remember if you had any legal doc requiring her to pay or not.... a promise to pay is just a promise, not a legal obligation... it is with your niece that you have legal recourse for the loan...


Then again, DS will probably never sue anyhow.... but just want to bring this up...

 

[14thMed]

Texas Proud, House was in DMs name until death.I inherited it then. When the student loan was first signed I had grave reservations about signing for it. DS promised to pay if borrower didn’t. Verbal agreement. We DS and I initially were both on the paperwork but DS wanted off and had her name removed.We still had a verbal agreement to split the proceeds. However when the student loan thing blew up, I have insisted that be paid out of her half.DS can still get the remaining part of her half from the son who is buying the property.
The reason I felt that selling was my only option was DS wanting to move into the property. I felt that if she moved in I would be waiting for years for a resolution, and end up paying for the student loan. Also DS and I had said all along that when DM passed we would sell. The moving in part changed everything.
I did ask her to just pay the loan but I don’t think she was able to come up with the money.

 

[Texas Proud]

Texas Proud, House was in DMs name until death.I inherited it then. When the student loan was first signed I had grave reservations about signing for it. DS promised to pay if borrower didn’t. Verbal agreement. We DS and I initially were both on the paperwork but DS wanted off and had her name removed.We still had a verbal agreement to split the proceeds. However when the student loan thing blew up, I have insisted that be paid out of her half.DS can still get the remaining part of her half from the son who is buying the property.
The reason I felt that selling was my only option was DS wanting to move into the property. I felt that if she moved in I would be waiting for years for a resolution, and end up paying for the student loan. Also DS and I had said all along that when DM passed we would sell. The moving in part changed everything.
I did ask her to just pay the loan but I don’t think she was able to come up with the money.

OK, then it sounds legit... your house, your rules... and an unenforceable agreement to pay that pays off another unenforceable agreement to pay... what could be more perfect!!!


BTW, there is no legal requirement for you to pay anything to her from what you say... it is just a good thing to do... at least you keep your word...

 

[ivinsfan]

Texas Proud, House was in DMs name until death.I inherited it then. When the student loan was first signed I had grave reservations about signing for it. DS promised to pay if borrower didn’t. Verbal agreement. We DS and I initially were both on the paperwork but DS wanted off and had her name removed.We still had a verbal agreement to split the proceeds. However when the student loan thing blew up, I have insisted that be paid out of her half.DS can still get the remaining part of her half from the son who is buying the property.
The reason I felt that selling was my only option was DS wanting to move into the property. I felt that if she moved in I would be waiting for years for a resolution, and end up paying for the student loan. Also DS and I had said all along that when DM passed we would sell. The moving in part changed everything.
I did ask her to just pay the loan but I don’t think she was able to come up with the money.

You have finally drawn your line in the sand, but most likely it means you will no longer has any sort of contact with your sister and niece. I don't know how you feel about that.

You've made a couple errors in judgement as well. You let yourself be railroaded in co-signing, you let your DS "remove" her name from the loan.
I'm sure you'd like a do over, this fiasco has cost you dearly within your family.

 

[Big_Hitter]

You have finally drawn your line in the sand, but most likely it means you will no longer has any sort of contact with your sister and niece. I don't know how you feel about that.

You've made a couple errors in judgement as well. You let yourself be railroaded in co-signing, you let your DS "remove" her name from the loan.
I'm sure you'd like a do over, this fiasco has cost you dearly within your family.

over just $22k too - sad

 

[ivinsfan]

over just $22k too - sad

Perhaps it's about the money, but the OP has been lied to and dismissed by both the DS and the niece. They have not treated him as a valued family member who tried to help another family member.


That's why I said I don't know how he feels about this bond being broken, he might be fine with not much contact after his last experience.

 

[Texas Proud]

Perhaps it's about the money, but the OP has been lied to and dismissed by both the DS and the niece. They have not treated him as a valued family member who tried to help another family member.


That's why I said I don't know how he feels about this bond being broken, he might be fine with not much contact after his last experience.

To me this is the main take away... DS and niece treated OP horribly.... probably thought 'he has plenty of money and can afford this, we don't have any'.... or even worse 'we deserve this'....


Either way, I would still invite them over for family get togethers as they are still family.... just do not lend them anything or even give them anything... then it is up to them to determine if they want to participate...

 

[harley]

If the house was in your name for whatever reason, and you give half the proceeds or the equivalent to DS, that's a huge gift and will result in a significant gift tax hit. I keep hearing of people wanting to handle things this way and wonder how they get away with it. Maybe the IRS is sleeping (I hope so), but it seems pretty risky to me.

 

[ivinsfan]

If the house was in your name for whatever reason, and you give half the proceeds or the equivalent to DS, that's a huge gift and will result in a significant gift tax hit. I keep hearing of people wanting to handle things this way and wonder how they get away with it. Maybe the IRS is sleeping (I hope so), but it seems pretty risky to me.

Depends of the value of the house but yes, he's keeping 22K to satisfy the student loan and apparently put some of his money into the house for repairs and such.

I'm wondering, given his money history with the DS how this will all end. But he should check with a tax guy or even maybe have a short chat with a lawyer.


There's a good reason for the saying no good deed goes unpunished….he just wanted to help out his niece and landed in this mess.

 

[cathy63]

If the house was in your name for whatever reason, and you give half the proceeds or the equivalent to DS, that's a huge gift and will result in a significant gift tax hit. I keep hearing of people wanting to handle things this way and wonder how they get away with it. Maybe the IRS is sleeping (I hope so), but it seems pretty risky to me.

Well, you don't actually owe the IRS any money until you've given away over $5.6M in gifts, and it seems unlikely that OP will have that much profit to share with his/her sister. Before $5.6M you just have to file a gift tax return tallying up how much you gave away over your lifetime. If the tax owed is $0, there's no penalty for failure to file, so nothing to worry about if the IRS does come calling. Not filing will leave a problem for the heirs to sort out if the total estate plus past gifts exceeds the estate tax threshold, but OP will be past caring by then.

 

[Souschef]

If the house was in your name for whatever reason, and you give half the proceeds or the equivalent to DS, that's a huge gift and will result in a significant gift tax hit. I keep hearing of people wanting to handle things this way and wonder how they get away with it. Maybe the IRS is sleeping (I hope so), but it seems pretty risky to me.

The gift tax does not kick in until over $ 5 million. He may have to file a form 709, however.

 

[14thMed]

OP here, DS won’t be receiving much cash from the sale. DS’s son who is buying the property got the family discount so DS can get her equity from him.
I won’t miss my niece at all. My DS I hope will come around eventually. I have to admit that I have lost sleep over this but as I said before l wasn’t going to have all of these issues hanging over me or my family forever.
Yes, This started over 22k, It is a lot of money for me. My DW has not said much about the situation but I know she would be very unhappy if I let this slide. It would be taking resources away from our children and grandchildren.

.

 

[Ticker]

I'd buy the loan back from the bank, pay it off, forgive the loan, and then send you niece and the IRS a 1099 for the debt forgiveness. That way she'd be on the hook for some of it, and you'll feel better about yourself.

 

[ivinsfan]

I'd buy the loan back from the bank, pay it off, forgive the loan, and then send you niece and the IRS a 1099 for the debt forgiveness. That way she'd be on the hook for some of it, and you'll feel better about yourself.

Have you read this entire thread, there are two people here that should feel badly about their behavior and the OP is not one of them. He doesn't need to feel better about himself. He's done nothing wrong or even remotely shady.

 

[harley]

Well, you don't actually owe the IRS any money until you've given away over $5.6M in gifts, and it seems unlikely that OP will have that much profit to share with his/her sister. Before $5.6M you just have to file a gift tax return tallying up how much you gave away over your lifetime. If the tax owed is $0, there's no penalty for failure to file, so nothing to worry about if the IRS does come calling. Not filing will leave a problem for the heirs to sort out if the total estate plus past gifts exceeds the estate tax threshold, but OP will be past caring by then.

Ah, thanks. I never understood that properly. I had always thought that over (currently) $15K in a year to an individual was taxed that year. Thanks for clearing that up for me.