Divorce and Debt

Divorce and debt can bring with it many credit questions and challenges for both parties involved. Whether you are responsible for your ex-husband's or ex-wife's debts depends on the circumstances surrounding the issue, your state law and perhaps most importantly, who signed the credit contract.

For instance, if your name is still on the credit contract you are still responsible for the debt regardless of what the divorce decree states.

It's important to understand that a divorce decree only spells out who is supposed to pay the debt. It does NOT legally change who is responsible for the debt.

When couples divorce, they usually agree on who pays what. For example, a car loan is in both names and the divorce agreement states that the ex-wife keeps the car and is responsible for making the payments.

Several months later, when the ex-wife defaults on the car loan, collectors start calling her and her ex-husband. The ex-husband claims that the debt is not his because his ex-wife got the car and the payment in the divorce. The collector says it is the ex-husband's responsibility and will pursue legal action if he does not pay up. The collector is correct and will probably win in court!

In matters of divorce and debt, and especially after the divorce is final, divorcing couples would be wise to have joint credit contracts revised so that only the name of the person responsible for the debt is on the contract.

Be advised that creditors are reluctant to do this, especially after a divorce, because experience tells them the chances of the loan becoming overdue is high and so having two people responsible for the debt is better because if one ex-spouse defaults, the lender can still pursue the other ex-spouse

When an ex-spouse goes bankrupt, if there are no joint debts, you have nothing to worry about and your credit will not be affected.

On the other hand, you might be held responsible for the entire debt of any joint account with your name still on the contract.

The bankruptcy laws are very complicated concerning divorce and debt, and with the recent changes, it's best to consult a bankruptcy attorney to be sure of your status.

If you were not notified when your ex-spouse failed to pay a joint debt that he or she agreed to pay, it is probably because the creditor has only one address; typically the address before the divorce; the creditor is not obligated to track you down.

Always remove your name from joint accounts upon divorce. If the lender refuses to allow this, then ensure the lender has your current address and agrees to notify you whenever the account is in danger of becoming delinquent.

Doing this may prevent the account from being sent to collections and being reported as a negative on your credit reports.

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