Niece Leaves Aunt on Student Loan Hook

By

Published June 09, 2014

| Bankrate.com

Dear Dr. Don,

I lost my job and this has caused financial trouble for me. My aunt co-signed my student loan and I have now defaulted on the payments. Can she sue me for implied contractual indemnity? I'm worried. Any advice would be much appreciated!

Thanks,

-Cherie Collegiate

Dear Cherie,

In short, yes. Your aunt may have grounds to attempt to recover the payments she made to the lender on your behalf. Since I'm a financial expert, not an attorney, I will avoid going into the question of implied contractual indemnity and whether it is the basis of a potential lawsuit.

However, I did speak with an attorney. He pointed me to provisions of the Uniform Commercial Code, which provides the framework for state law around the country. Let's call it the code, for short. At issue are the legal remedies, or options, available to your aunt, who is considered the accommodation party. Because you got the help, you are the accommodated party as a result of your aunt's loan payments. Under the code, an accommodation party who pays (that's your aunt) is entitled to reimbursement from the accommodated party (that's you).

Instead of taking a look at what the law provides, how about if we think about human relationships? Rather than waiting for your aunt to go to court, can't you discuss your financial situation with her, including any plans to repay her when you find a job? Clearly, your aunt didn't expect to be left paying the loan by herself. Any reasonable person would want to be reimbursed. So, my advice doesn't concern legal or financial issues; they're more in keeping with good manners. Please help her avoid going to court to try to get her money back. That should satisfy the needs of both of you.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

URL

http://www.foxbusiness.com/personal-finance/2014/06/09/niece-leaves-aunt-on-student-loan-hook/