they got the car back & after all is said & done she got a letter this week to pay about $20,000 of the remaining debt. The son seems to have quit on the debt - can she avoid the debt & protect our home, savings, retirement, cars etc. from collections?
When you say, "they got the car back" I am assuming you mean that the lender repossessed the vehicle and then sold it at auction. Unfortunately, when lenders require a cosigner it is for just this reason. They did not trust that the son could or would pay for the loan so they required someone else to ALSO accept the legal obligation to pay.
If your wife signed the loan papers then she is obligated for the full debt that remains unpaid. The only way she could "avoid the debt" would be to either try to negotiate a reduced settlement with the lender or, to consider whether filing a bankruptcy might be in her best interest.
You and your wife first need to understand that cosigning on a debt means that you agree to pay the debt and that the odds are that you WILL be asked to pay the debt. Don't cosign on a debt you are not willing to pay. The credit professionals (the bank) did not think her son would pay the loan or they would not have required a cosigner. If your wife thought she knew better than the credit professionals, she has now learned the error of her judgment.
This debt is like any other debt. She can pay it, file for bankruptcy protection, or the creditor will seek a court judgment to collect against her and her assets. She does have the option to sue her son and make him pay the debt since he was the primary borrower in the first place, but unless she does this and is successful, it is a good bet that the lender is going to look to her for payment. As noted above, they never thought the son would pay anyway.
As for your assets, much of it is protected from collection. Retirement funds are protected until withdrawn. The equity in the house is protected to a certain level by the homestead exemption. Any equity she has in her car is also protected to a certain level.
The main risk your wife faces if the creditor gets a judgment and she does not file for bankruptcy protection is that the creditor will garnish 25% of her take home pay if she has wages and/or garnish any money she has in bank accounts (or joint bank accounts). The creditor will also put a lien on the house that will have to be paid before the house can be sold or refinanced, although it is rare for a creditor to actually try to foreclose such a lien.
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You will owe the debt. Take the car loan documents to a local attorney with contract litigation experience to review and provide you with your options. With $20,000 owed, it is worth a short review and some advice from an attorney to see if there is some way to get around it.
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