Q: I have a nephew whose father co-signed for an $70,000 educational loan. His father has since gone through bankruptcy. My nephew is now telling me that since his father was the co-signer and went through bankruptcy, his educational loan is forgiven.

He has also told me that since then he has been pre-approved for a $240,000 mortgage proving that the loan has been forgiven as far as he is concerned. He says getting a mortgage will be no problem and that his credit history is fine. He feels he has no connection to either the loan or the bankruptcy that forgave the loan (if indeed it has been forgiven).

I try to tell him that a pre-approval means nothing. He must be pre-qualified which means the lending institution has done a comprehensive credit check prior to mortgage approval. I try to tell him this is going to show up when the lender checks his financial credit history and I’m afraid he’s in for a lot of disappointment.

He doesn’t want to listen. I’ve told him to contact an attorney before he “rolls the dice” on this but he’s convinced he has no connection to the loan (even if he was the sole beneficiary) or the bankruptcy that forgave it.

Is this possible? He and his wife have a combined income of approximately $70,000 to $80,000. I told him a loan of $240,000 with that level of income was not realistic. He is a newlywed with a child on the way and has never applied for a mortgage before.

Am I off base here? Any advice for my nephew?

A: To the best of my knowledge, school loans are never forgiven in bankruptcy. So, that $70,000 is still a debt to be paid, and soon the creditor will figure out that the father doesn’t have any money and will go after his son, who co-signed for the loan.

What your nephew doesn’t realize is that his financial life just took a serious turn for the worse. He has blinders on — for now. If you want to help him grasp the financial realities of life, help him pull up a credit report at myFICO.com. For about $30 he can get his credit report pulled from the three credit reporting bureaus, plus his credit score. That will tell you both all you need to know about his credit history.

I suppose it’s possible that somehow his name was dropped from the school loan. But what has probably happened is the bankruptcy slowed everything down. Pretty soon, however, the paperwork will catch up to him.

Unfortunately, your nephew’s father hasn’t been a good role model financially. And while you love your nephew, you have to let him make his own mistakes. Offer to help show him what it’s all about, and then leave him be. He and his wife will learn soon enough.

Published: Jan 16, 2004