Owner Liability For Co-Signers in Michigan

Key Takeaways

• A co-signer is an individual who signs for a loan with someone else (the borrower) who has poor credit or has not yet built up a credit history of their own.
• While co-signing is often done as a favor to the borrower, it is important to know the risks you are assuming and your options if something goes wrong.
• Various risks are associated with being a co-signer on a loan, including liability for paying off the loan, the ability to be sued by the lender, and damage to your credit score.
• While a co-signer does not usually have to be on an insurance policy, it is advisable if they are parents who plan to drive the vehicle sometimes or live under the same roof as the borrower.
• A co-signer may be able to escape the obligations under a loan, but the options to do so can be challenging and difficult to obtain. These include paying off the loan, refinancing, selling the car, and releasing the co-signer.
• If a car accident occurs, the question of who is liable for paying off the loan can become complicated quickly and requires the legal help of an experienced attorney.

Owning and operating a car always comes with risks from other drivers, the weather, and road conditions. As the driver, you may feel okay about taking those risks because you are behind the wheel. However, what about the times you are not, and the person you co-signed the car loan for is the one driving?

Such a situation can be unpredictable at times, and you may wonder what your responsibilities might be should something happen. In fact, it is important to know that you may still be held liable if that other individual is operating the car and gets into an accident here in Michigan.

Continue reading to see what risks you, as a co-signer, are signing up for when you put your name on the loan. If you or the borrower have been in an accident, contact Matz Injury Law to see how our knowledgeable Michigan car accident attorneys can help with your situation.

What is Co-Signing?

The act of co-signing is when you sign for a loan with someone else, usually a family member or other trusted individual, who does not have enough credit (or only poor credit) to sign on their own. Essentially, if you co-sign, you assume the loan debts without any ownership of the property that the loan is being secured to purchase.

It is crucial, then, for any signer to take particular precautions prior to co-signing. Such precautions include:

• Be able to pay off the auto loan if needed.
• Negotiate the terms of your particular obligations under the loan agreement.
• Seek a co-signer release if the primary borrower and financial institution will agree.

In reality, there is often very little benefit to co-signing on a car loan. The co-signer does not get compensated in any way and may not even have access to the vehicle under the loan. While most people co-sign as a favor to the borrower, it is important to know the risks you are assuming and your options should something go wrong.

Remember: If your name is on the title or registration of a vehicle, that definition includes you. Even if you just thought you were doing someone a favor by cosigning a loan. Even if you have never used the car yourself. Check to see if you are going to be included on the registration and title of the vehicle before you sign.

If I Co-Sign on a Car Loan, Can I Be Held Liable if the Vehicle is in an Accident?

Yes, if you co-sign on a car loan, you can likely be held liable if the vehicle is in an accident.

Many well-meaning people try to help out family members and friends by co-signing car loans for them. We hear people saying all the time, “I thought I was just co-signing for the loan. My name wasn’t supposed to be ‘on’ the vehicle. Now I am being sued for an injury accident!”

The problem is that many lenders require all the parties who sign as borrowers to be listed on the title and registration. The dealership usually does this, so you might not realize that you are not just guaranteeing the loan repayment. You are also an “owner” of the vehicle if your friend or family member is driving it and is in an accident. That means you could be held responsible (even be sued) if “your” vehicle was at fault and someone else got hurt. If you don’t get your own insurance on that vehicle, you could face financial problems if the vehicle is involved in an accident.

Remember: for this issue, an “owner” of a vehicle is defined as a person who holds legal title to a vehicle. If your name is on the title or registration of a vehicle, that definition includes you — even if you just thought you were doing someone a favor by co-signing a loan and even if you have never used the car yourself. Check to see if you are going to be included on the registration and title of the vehicle before you sign. Think hard about whether you want to take that risk! Ask your insurance agent about coverage before you do anything.

What Risks Are Associated With Co-Signing a Loan for a Car in Michigan?

When co-signing a loan in Michigan, you accept certain risks that can be detrimental later on should things go wrong.

These risks associated with co-signing a loan for a car in Michigan include the following.

• If you co-sign, you will be the debt’s guarantor if the loan defaults. You may be liable for the entire loan obligation or the portion remaining once it defaults. In other words, if the borrower defaults on the monthly payments, the financial responsibility for paying off that loan falls to you.
• The lender will likely go after you rather than the other person to collect the money. Per the Federal Trade Commission, there is no legal requirement for the lender to seek collection from the primary borrower, especially since they are the ones who needed a co-signer to get the loan in the first place.
• Co-signing a loan may hurt your credit report and score.
• The lender may sue you. If you cannot or do not pay the full amount right away, your wages may be garnished, or you may face other collection activities.
• Being a co-signer can limit or even prevent you from being able to secure other credit for yourself (e.g., receiving a new credit card).
• If the borrower files for bankruptcy and the bankruptcy court discharges their debt, you must also declare bankruptcy; otherwise, you will be responsible for the remainder of the loan.

While the lender can repossess the vehicle and sell it, they may not receive the full amount of the outstanding loan under this process and can come to you for the difference.

If the primary borrower of the loan is in an accident and is sued for damages, they may or may not be able to pay those damages and the loan itself. If this happens, you must help pay the remaining balance.

The bottom line is this: if you are a co-signer, the ability of the lender to sue you first can be problematic for you and your family. If such legal action is taken against you, seek legal advice to understand your rights and the options that may be available to you.

Additional Resources

When it comes to auto accidents, much is at stake. Here are additional resources should you need more information.

• Are Parents Liable for a Child’s Car Accident in Michigan?: Find out if and when parents can be held liable for a child’s car accident in Michigan and learn about negligent entrustment.
• 2024 Guide to Michigan Car Accident Lawsuits: Be prepared should you be involved in a car accident lawsuit with this 2024 guide.
• What to Know About Michigan Case Costs and Attorney Fees: Learn about common attorney fee structures, what a contingency fee entails, the maximum lawyer fee in Michigan, and the different case costs usually associated with a personal injury case.

_{Seek skilled legal representation Matz Injury Law if co-signing has put you at risk.}

Why Clients Choose Matz Injury Law

Matz Injury Law has been serving Michigan clients for decades. We start by listening to our clients and helping them navigate the legal process so insurance companies do not gain the upper hand and attempt to disregard or dismiss their claims.

We are also known for taking a different approach to a contingency fee, lowering it to just 22% versus the standard legal fee of 33 1/3%.

Consider The Following Scenario

After a serious car accident, you win $750,000 in compensation in a personal injury lawsuit. Here is the breakdown of the outcome of the standard law firm fee vs. Matz Injury Law’s fee structure.

• Standard 33 1/3% fee: You receive $500,000 ($750,000 – ($750,000 * 0.0000))
• Matz Injury Law 22% fee: you receive $585,000 ($750,000 – ($750,000 * 0.22))

In this scenario, by choosing Matz Injury Law with our lower fee of 22%, you would take home an additional $85,000 compared to what you would receive under the standard legal fee of 33 1/3%.

Testimonials

Our clients give an honest assessment with their voluntary testimonials, such as the ones we share below.

“My family is grateful for Steve Matz’s professional handling of our case.  Steve was very thorough, candid, responsive, and strategic in his approach throughout our legal proceedings.  If ever a situation again like my family has experienced over the past year, we would immediately retain Matz Injury Law to represent our interests. Thank you, Steve. — John P.

“I am very pleased with the help from you and everyone in your office. I am glad. You did an awesome job, and thank you so much for helping me through all this. Again, thank you so very much.” — Almira W.

“For anyone looking for an attorney, please look no further than Matz Injury Law!! Not only was Jared professional, he helped me beyond what I could have asked for. I’m so thankful for you all!!!! To say I’m appreciative and grateful is an understatement. There’s no need to look for any other attorneys for your auto accidents!! They are so wonderful!!! Highly recommend 10/10!!!!!” – Tessa C.

Matz Injury Law Can Help After a Car Accident

Whether you are a co-signer or a co-owner of a vehicle involved in a car accident, you need to know your rights and what options are available to you. The experienced injury attorneys at Matz Injury Law can help. Schedule a free consultation with one of our lawyers today by calling 1-866-22Not33 or by using our online contact form.