08 Mar Bankruptcy And Should You Sign For Your Child’s Student Loan, Car Or House?
NO! You should not co-signed for your child’s student loan or any other debt regardless of a bankruptcy status.
Now here is why.
Many of the older debtors that come into my office to file for bankruptcyare there NOT because they are bad with their own debt, but rather their children are reckless debtors.
It is natural that you want to do everything you can to help your child. But stop and think about this, if continue to sign for all your children’s debt you are doing several things. You are increasing the amount of debt that you are carrying which in turn may decrease your FICO Score. A decreased credit score may result in an increased interest rate or a denial of credit.
Does this mean that you cannot or should not help your children?
Absolutely not, but maybe you ought to think like Warren Buffett who believes that everyone should earn their own way in life, even his own children.
If your kids are headed off to school make them pay their own way. This gives them a sense of accomplishment and if at the end of the road you are able to pay off their loans you are not only providing for them but you have helped them establish credit.
There are many ways to pay for college, scholarships, grants or working your way through your way through college. From the time that your children are in elementary school you should be talking to them about their future and what they want to do. They can begin to investigate ways to handle the debt load that college will create.
Are they buying a car or a house for the first, second or third time? It is common for kids to come to their parents and say “I just cannot afford it if you don’t give me the down payment.” The response should be respectful but consistent. “If you cannot afford the down payment then you cannot afford the vehicle or the home.”
When I went to college I asked my parents to pay for college. They flat out refused. Although they gave me spending money, occasionally, they refused to pay the tuition. My mom said “you will not understand now but you will someday.” Yeah right I thought, I will never understand why.
Well today I do understand wholeheartedly. My mom just retired and I am truly glad that she has not been saddled with my student loan debt. Now she can take care of herself and enjoy what she has worked her entire life for. She has the freedom to travel and do things that she never had the chance to do before.
The bottom line is she would not have this freedom today if she had picked up the tab on her children’s education. The current tab for my college education is $196,000. Although I have seven degrees I dare say that my mother is quite relived that I am paying for my education and she is not. Did my mother feel bad about the decision? She says that for many years she wondered if she did the right thing. I know in my heart that she did make the right call and as she is now enjoying her new found freedom I think she would agree.
Think 2,3,4, times before ever signing for your children’s debt. If you end up going bankrupt because you have signed for children’s debt who will be there to take care you or child?
Remember that knowledge is power. The more knowledge you have about your liability about co-signing for debt, the more power you will have to avoid a potential non-dischargeable debt.