The Short Answer
Cosigning on a debt means you are equally responsible for repaying it — not just a backup. If the primary borrower stops paying, the creditor can come after you for the full amount, sue you, place liens on your property, and pursue your bank accounts. The danger isn't just inconvenience; it can destroy your own financial stability even if you never spent a dollar of the loan yourself. Before cosigning for anyone — family or not — understand that you are taking on that debt as if it were your own.
Cosigning on a debt is almost never recommended. However, it’s a tough decision sometimes when you have friends or family that need you to cosign on a debt to receive the necessary loan. Typically, though, it’s not a good idea to cosign on a debt. Let’s find out why.
What is a cosigner?
When someone is trying to obtain financing and they do not have the FICO credit score necessary to receive financing on their own, the creditor may request someone else cosign on the debt to receive the desired financing. So what exactly does cosigning mean? If someone cosigns on a debt it means they are agreeing to be responsible for that debt if the original debtor is unable to pay it.
The problem is, if the person who originally needed the loan can no longer pay it then the creditor can go after the cosigner for the debt. The creditor has the same rights to go after the cosigner as they do the primary debtor. It is not uncommon at all to see a codebtor be sued for an uncollectable debt.
Lets take a look at an example:
Dana the daughter needs to get a new vehicle. Her old vehicle has broken down and without a new vehicle she cannot get to her minimum wage job. She goes to a car dealership and after sitting down to sign all of the final paperwork the finance director at the car dealership they tell her they cannot give her financing due to her low credit score. Dana had a repossession three years ago that appears on her credit. They tell her she will need to get a cosigner to receive the necessary financing. Stressed and needing a vehicle Dana calls Molly, her mother, to explain the situation. Molly the mom wants the best for her daughter Dana and knows she has to have a vehicle. Dana promises her mom that she will make the payments. Hesitantly Molly cosigns on a car loan for $30,000.
Fast forward and a year later Dana has made all of the payments on the vehicle. Molly barely even remembers that she cosigned on the debt. Unfortunately though, Dana ends up losing her job and can no longer afford the monthly car payment. To ensure the car is not repossessed again Molly, Dana’s mother, agrees to make the payment until Dana gets a new job. Months and months pass by and Dana is unable to find a job. Molly has used her savings and even pulled from her retirement account to try to continue to make the payments. Eventually, Dana’s moved back in with her mother and Molly has exhausted all of her savings and retirement funds and they get behind on the car. The financing company eventually repossesses the vehicle and sells it at an auction for $5,000. The problem is, they still owed $20,000 on the vehicle. The finance company then tried, unsuccessfully, to collect on the deficiency balance of $15,000. Because of that, they filed a lawsuit against both Dana and Molly and eventually place a lien on Molly’s house and add interest, late fees, penalties and attorney’s fees to the amount owed.
The creditor could potentially try to repossess Molly’s other vehicle (which is paid off), go after money in her bank accounts and even foreclose on her house (which has a lot of equity). As time passes the creditor continues to add extra fees to the amount that is owed. Eventually, Molly has to file bankruptcy because she owes on the deficiency on the vehicle that she cosigned on and owes a lot in taxes because she had to withdraw a lot from her retirement account.
So what have we learned?
Don’t cosign on a debt with someone else. The person needing a cosigner may have the best of intentions. In our example above, Dana certainly did not want her mother to go through the stress and worry of having creditors come after her. The reason a finance company requires a cosigner is that they believe there is a good chance the person seeking the financing won’t be able to make the necessary payments. If this were to happen, creditors don’t care that you cosigned just to help out. Instead, they will come after you as if you were the one who originally failed to make the payments.
Key Takeaways
- A cosigner is legally treated the same as the primary borrower — creditors can sue you, place liens on your home, and pursue your assets if the other person stops paying.
- A repossessed vehicle rarely sells for what is owed, leaving a deficiency balance that both the borrower and cosigner are responsible for.
- Even the best intentions from the person you cosigned for won't protect you if their circumstances change — job loss, illness, or divorce can make a loan unpayable overnight.
- Withdrawing from retirement accounts to cover someone else's loan payments can trigger a significant tax bill, compounding your financial damage.
- North Carolina does not allow private creditors to garnish your wages based on a court judgment alone, but a judgment creditor can still place a lien on your home and pursue bank accounts.
- If cosigning a debt has already pushed you into financial crisis, bankruptcy may be able to eliminate the deficiency balance or other resulting debts and give you a path forward.
Attorney Insight
The mistake I see most often with cosigners is that they come in thinking they're a last resort — that the creditor has to exhaust every option against the primary borrower first. That's not how it works. In nearly 30 years of practice, I've had clients facing foreclosure on their own homes over a vehicle loan they cosigned and never drove a single mile. What makes it worse in North Carolina is that a judgment creditor can attach a lien to your real property, and if you have significant equity, they will use it — the $35,000 homestead exemption only goes so far.
