After divorce, ex leaves joint debts unpaid
To Her Credit
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com
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Dear To Her Credit,
My husband and I divorced in 2009. I was the only one who got
a lawyer. We split the debt (credit cards, loans and so on) in half.
I have since been paying all of my part of the joint debt, but my ex never paid any of his. He lived in our home for two years and never paid the
mortgage, which resulted in foreclosure. Ten months ago, he quit his job and
stopped paying alimony and child support.
I couldn't keep up paying the bills, so three months ago I
signed up with Consumer Credit Counseling Services and enrolled in their debt
One of the credit cards for which he was responsible has a
balance of $20,000. I am the primary account holder. I haven't heard from them
in four years, but last week I called the credit union where the credit card is
from and they said they are going to sue me and garnish my wages for over
$21,000. The representative said he would cut it down to $6,435, or $535 a
month for 12 months.
I don't have any extra money to pay this, but he said if I
don't accept the offer they will sue me for the full amount and garnish my
wages. The only way I can pay this is to withdraw or borrow from my 401(k) plan.
I am not sure if I should just let it play out and see what
happens or take from my retirement. I also am afraid that I will be sued for
the foreclosure on the home so I may end up having to declare bankruptcy in the
long run anyway. I live in Ohio. I am trying so hard to get my life back in
order and start over. Thanks for any advice. -- Cindy
The last thing you want right now is for me to tell you what
you've done wrong. However, to get out of this mess, it's important to see how
at least some of it could have been avoided.
You're never really free of an ex-spouse as long as you have
unpaid credit card and other debt together. So, whenever possible, don't "split
the debt" during a divorce settlement. Creditors don't care about the
particulars of your divorce settlement; they just want to get paid. Your
creditors extended credit based no doubt on your good name, and they're not
about to take their chances with Mr. Deadbeat. Can you blame them? Looking
back, it would have been better to sell the house, cars and any other assets to
pay off the credit card debts when you got a divorce -- even if you had to take
Second, when you have old debt you cannot pay, and you haven't heard
from the creditor in years, it's not usually a good idea to call, especially if you're in a debt management plan, or DMP, with a credit counseling agency. The danger is
that you could "reaffirm a debt" that was close to or past the statute
of limitations. That means the statute of limitations clock starts all over
again. In Ohio, the statute of limitations is six years. You may not have
reaffirmed the debt just by calling. However, you may have if you said that
the debt was yours or if you agreed to make payments. It is the responsibility of the credit counseling agency to handle the debts you cannot pay, so just turn this over to your credit counselor.
Please don't take money out of your 401(k) plan to pay off
an old credit card. Retirement money is for retirement. It could take years to
put that money back. By the time you pay penalties and interest on the amount
you withdraw, it won't go as far as you think. Retirement accounts are
generally safe from creditors, too, which is one more reason to leave them
alone. When you're trying to figure out how to pay credit card debt, pretend
your retirement accounts don't even exist.
You generally can deal with debt in four ways: contest it,
pay it, negotiate it or have it discharged in bankruptcy. If it's in your name
and it's not past the statute of limitations, it's hard to contest. If the only
money you have to negotiate with is your retirement account, forget it.
Bankruptcy ... let's hope it doesn't come to that. The credit
counseling services can help you deal with collectors, and you can read up on how to deal with them too.
You live in a so-called recourse state, which means you
could be sued for the shortfall on your home foreclosure. If that's true and
the amount is insurmountable for you to pay, you could be forced to consider
bankruptcy. That would be a difficult decision, especially after you've tried
so hard to start over and pay off your debts. Don't jump to the conclusion you
need to file for bankruptcy, however. Lenders decide whether to pursue a debt
based on their own self-interest. It's not cheap to file a lawsuit against you,
and if you have no assets to speak of, they may decide to pass.
Ideally, your ex should be the one to pay off these debts.
Counting on him has turned out to be far from ideal, however. If he has any
assets, I recommend you sue him. He failed to live up to the terms of the
divorce settlement, which the courts don't take lightly. If he's doing nothing
but sinking lower into insolvency, however, you may not gain anything by taking
him to court.
One thing you've done right was to sign up with Consumer
Credit Counseling Services. That shows you're serious. Don't give up after
you've come this far. Every time you get rid of an old joint debt, you're one
step closer to being free of the past. Good luck as you continue on your new,
independent financial life.
See related: Will bankruptcy stop wage garnishment?, What benefits are exempt from garnishment?
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Published: February 14, 2014