How to resolve joint debts and protect yourself in a divorce

In my previous post, I discussed the unfortunate fact that your divorce decree will not change your contract with your creditors. In other words, if you and your ex-spouse were both jointly liable on a Visa credit card, the divorce decree saying that your ex-spouse is liable for the debt owed to Visa does not change the underlying contract with Visa, meaning: if your ex-spouse doesn’t pay Visa, Visa will very likely try to collect that debt from you. 

Here are some possible solutions to remove a party from a joint account:

1) New account with the same creditor. Sometimes, by talking to the creditor first, you can get them to issue a new account with just the liable (according to the divorce decree) party’s name on it. Creditors may not always be willing to do this, as it is obviously beneficial to them to have both of the joint debtors on the hook for the debt. However, some people have had success with this tactic.

2) Refinancing the debt. Find a creditor who is willing to refinance the outstanding debt into the liable (according to the divorce decree) party’s name. Be cautious in choosing this option that the payment terms (interest rate, number of monthly payments, amount of payments, etc.) are doable and that they make sense for you. It wouldn’t make sense to refinance from a 2% APR to a 12% APR if you didn’t have to, right?

3) Paying off the debt using marital assets. If the divorcing parties have enough assets to do so, the parties might choose to pay off their marital debts using their marital assets. That way neither party has to worry about the other party failing to make a payment on a joint credit account.

4) Extreme cases only: bankruptcy. Sometimes a divorcing couple will have a crippling amount of debt and at that point, it may make sense for one or both parties to file bankruptcy. In deciding whether to file an individual or joint bankruptcy and in deciding in whether to file before or after the divorce is finalized, it is important to know your spouse AND it is important to consult with both your divorce attorney and with a bankruptcy attorney.

Resolving joint debts is a common issue that comes up in a divorce. It is important to know your spouse and how reliable they are when it comes to paying their debts before agreeing to something that could negatively impact your financial future. Additionally, because some of the above options may not be available for all people, you will want to do research early on in your divorce. In other words, it doesn’t do any good to agree that each party will refinance the joint debts for which they are responsible (according to the divorce decree) into their own name if it turns out that neither party is actually able to do so due to having bad credit or due to lending practices at the time of the divorce. In order to resolve the joint debts in the way that makes the most sense and in a way that protects you, you need to know what options are available for you on each debt.

 

Elizabeth Rosar Chermack is a Minnesota Divorce and Bankruptcy Attorney, and can represent you in your case.   Call (952) 491-0390 or send an email to liz@chermacklaw.com to schedule a consultation.

 

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