 TITLE: How Cosigners Are Affected When a Car Is Repossessed CONTENT: Are Cosigners Liable for an Auto Repossession?\n----------------------------------------------\nAs a cosigner, you're essentially agreeing to make payments on the loan if the borrower can't. That means your signature on a loan can help a friend or family member get a loan they otherwise wouldn't be able to. It also means you're equally liable for the debt, which might compel you to step in and help with loan payments if the borrower begins to have trouble.\nIf the car loan goes into default and results in car repossession, you'll be equally liable for that too, including any deficiency balance.\nA deficiency balance is what results after a lender sells a repossessed car at auction but can't get enough for it to make up its financial loss. Unfortunately, auctioned vehicles often sell for less than they're worth, which leaves the borrower and cosigner on the hook to pay the deficiency balance. The amount owed can include any remaining loan balance, combined with fees incurred by the repossession, minus proceeds from the sale.\nLet's say the borrower still owes $8,000 on their auto loan. If the lender sells the car for $5,000, there would be a deficiency balance of $3,000—plus any repo- or financing-related fees.\nThe lender will either try to collect this amount itself, or sell the debt to a third-party collections agency. (Note that, in some states, lenders can't pursue this debt if the original price of the car or the resulting deficiency balance is less than a few thousand dollars.)\nAs the cosigner, you and the borrower are equally responsible for paying the deficiency balance—and could be taken to court. To avoid this, you could try to negotiate a settlement with the creditor, paying a lump sum less than the total owed to have the entire debt erased. Just be aware that you may owe taxes on the amount forgiven. END