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Stephen Snyder
Staying married is tough. That's one of the reasons
so many people give up.
But staying together after a bankruptcy is really tough. Not only
do you have your personal issues to work through, but you're constantly
getting conflicting financial advice that can put you deeper in
the hole.
My wife and I made a promise early on in our bankruptcy that the
"D" word wasn't allowed to be uttered in our home.
It must have helped.
Although neither of us has been divorced, we were headed in that
direction on a few occasions. There was the time in 1995 that
Michele stayed in a hotel overnight without telling me where she
was. That was a real wake-up call.
But what would I have done if divorce had ever been an option?
I would have started by reading Mistake 24 on page 47 in Do You
Make These 38 Mistakes with Your Credit? Here's what it says:
"A divorce decree does not change the fact that you are a
co-borrower on a loan. What typically happens is a couple divides
their debt with no regard for who is legally responsible for the
debt. Each person is still responsible regardless of what the
judge says.
Both co-borrowers will suffer if one borrower defaults. So it's
best to assume responsibility for all debt for which you were
a co-borrower. This will ensure your credit is not negatively
affected.
If you are unable to assume responsibility for all co-borrowed
debt, it's best to close the accounts.
If you have accounts that you cannot close, refinance them to
put them in one person's name.
Closing accounts in this situation is the lesser of two evils.
It will lower your scores, but it's better than repeatedly making
late payments (refer to Mistakes 11 and 36).
You should also contact your lenders to determine what other options
you have."
As I said, a divorce decree doesn't change the fact that you are
responsible for any credit held jointly.
When you open joint accounts you and your partner sign a legally
binding agreement holding both of you responsible for the account.
The divorce decree is another binding agreement between two people
who consent to divorce. It does not change previous agreements
between you and other creditors.
It doesn't matter to the creditor who actually made the charges
(if it's a credit card). It doesn't matter who agreed to pay in
the divorce decree. And it certainly doesn't matter to the creditor
that you're getting a divorce. The creditor will try to collect
from both borrowers.
A word to the wise, don't sign a divorce petition until everything
with your jointly held credit is worked out. Promises to fulfill
at a later time or by a certain date can be overlooked and expensive
to enforce.
What I mean by "worked out" is that all credit held
jointly is closed, refinanced into individual names, or paid off
to eliminate the debt.
"Worked out" does not mean that your ex-spouse has signed
a promissory note or some other legal document promising to pay
off debt.
An irresponsible or vengeful ex-spouse can wreak havoc on your
credit rating for years after a divorce. It's legal harassment
in its truest form.
Bottom line: the best advice I can give you is…
…do not sign a divorce decree until all credit matters are
resolved. Signing the divorce decree should be your trump card
and a very good reason to make things happen your way.
What I've gleaned from divorced couples I've talked with is that
they believe signing papers at the lawyer's office resolves everything.
It doesn't.
You need to truly resolve matters, which, as I wrote above, means
get your name removed from everything jointly held before you
sign the divorce papers. That could mean refinancing, creating
individual accounts, paying off debt, closing accounts, or whatever
it takes.
The last thing you need are late payments appearing on your credit
reports after your bankruptcy is discharged. A series of recent
late payments can cripple your chances of getting low interest
rates after bankruptcy and keep the dark cloud of bankruptcy hanging
over your head well after it should.
If you plan ahead and pay close attention to credit accounts held
jointly, you can ensure that your credit reports and FICO credit
scores won't get damaged any worse. This is something that your
divorce attorney will never tell you about. It's not their area
of expertise. They simply don't know what kind of impact a divorce
will have on your credit reports and credit scores. And frankly,
they don't usually care.
When you're married, it's often easier to just make all accounts
joint accounts. Many of us do it without even thinking. However,
if you can both agree to have separate accounts in addition to
your joint accounts, it can potentially save months and years
of frustration for both of you if you do get divorced--or, for
that matter, if there's an unexpected death, disability or layoff.
Another situation where things can get sticky is when your ex-spouse
files bankruptcy and you don't. The creditors of jointly held
accounts that your spouse filed bankruptcy on will come knocking
on your door for payment...and eventually may push you into filing
bankruptcy (if you haven't already) regardless if the debts that
the spouse filed on were in the divorce decree.
Be aware that your spouse's negative narratives may appear on
your credit reports and damage your credit. I talk about negative
narratives on page 55 of Do You Make These 38 Mistakes With Your
Credit?
Here are some credit tips to help you through a divorce:
Close joint accounts before you separate or divorce
to prevent your former spouse from running up charges and leaving
you responsible for the balance. Closing accounts is the lesser
of the two evils in this situation. Closing accounts before you
separate will make it easier since your spouse is more likely
to cooperate with you. Some financial institutions will require
the primary account holder to close the account. If that's not
you, then you're going to need the help of your soon to be ex-spouse.
Establish separate accounts, such as credit cards, gas cards and
retail cards. This ensures that both parties are individually
responsible for their own accounts, which is valuable in a divorce.
The crown jewel out of this is you won't have to worry about re-establishing
credit on your own...because you will already have it.
Arrange new individual lines of credit with the same lenders to
replace each joint account and transfer agreed upon balances to
those new accounts. You want to avoid paying any new charges your
ex-spouse makes.
Some creditors will require you to pay off the account before
they put it in an individual name. If you cannot pay off the balance,
at least try to close the account to prevent any new charges
.
It may be wise to have an attorney involved if
creditors refuse to cooperate with you. The first thing your attorney
will need is a copy of the agreement you signed with the creditor.
There are several legal service plans that are cost-effective
for this sort of thing.
Try settling the account with the creditor directly by paying
a smaller amount than what is owed. The threat of bankruptcy could
help your plea. Just be sure you get promises in writing from
the creditor. Also make sure they will not report or try to collect
on the deficiency balance.
Pay the jointly held bills yourself--then go after your spouse
for the money owed.
Of course, you should also find a good and trustworthy lawyer
(good luck!) to help you. Obviously, I'm not a lawyer. And none
of what I just wrote should be misconstrued as legal advice. My
focus here your credit rating.
Article Source: http://www.ArticleJoe.com Stephen Snyder is the
founder of the After Bankruptcy Foundation a non-profit organization
that provides free bankruptcy information and recovery steps.
Stephen also writes a free weekly newsletter on bankruptcy recovery.
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