What can a co-signer do in the event of a default on a student loan?

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What can a co-signer do in the event of a default on a student loan?

My aunt co-signed for a student loan and the person has gone into default. The lender is now threatening to put a lien on my aunt’s house. She is in stage 4 cancer and just went on disability; she has Medicare and Medicaid. She has a Will that states who the property is going to after she passes on. If she quitclaimed the property to that person now, would it be OK? Also, would she lose her medicaid benefits? Is there something better for her to do?

Asked on December 17, 2010 under Bankruptcy Law, Indiana

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

I am so sorry for your aunt's situation.  Generally speaking a co-signor on a loan can be held liable for the payments should the primary signor default.  I think that your Aunt needs to go and seek help from an attorney in her area on handling the matter.  If she attempts to transfer the home to avoid having a line or judgement placed against it then it is more than likely that the judgement creditor will have the transfer set aside.  Even if it was to the primary loan holder, which I would really not suggest that she do given her track record thus far. She needs to sort out everything and see if she how to handle things.  Good luck to her.   


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