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 Steward Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets. Ask Sally a question, or read her previous answers in the To Her Credit archive
Dear To Her Credit,
Four years ago, I got divorced and my ex agreed to take responsibility for his car debt. I co-signed for the car, but I'm from another country and nobody explained to me how important credit is here.
Now, the company is suing to garnish my salary. I told the judge about the divorce decree, and he said there is nothing he can do. If they garnish my paycheck, what's left is not enough for me to pay my bills. I am thinking about bankruptcy. Can you give me any suggestions on what I can do? I'm so sad. -- Edith
If it's any consolation, know that you are not alone. Many people -- whether or not they have lived here all their lives -- do not understand how debt laws and credit scores work. When they let their ex have the car in the divorce, all too often they are surprised to discover that they're still liable for the loan they co-signed on.
They may think it defies logic that they are liable for a loan on the car their ex is driving around. If you look at it from the bank's perspective, however, you see that the bank made the loan based on the income and credit history of both of you. The bank is not going to let one of the co-signers go, and just hope the remaining spouse pays.
The family court that granted the divorce decree has no jurisdiction to change the loan contract, either. Los Angeles bankruptcy attorney Leon D. Bayer says, "In a divorce, when a court makes that kind of a decision (for the husband to pay off the loan), the decision only applies between the two parties. The creditor never agreed to it."
The judge in the garnishment case may not be able to help you, but the divorce court can. Go back to your divorce attorney and tell him what's happening. Bayer says, "If the husband has failed to comply with the divorce order, she can go into the divorce court and seek an order to show cause regarding contempt against him because of his failure to obey the court's order. The court ordered him to pay that debt and protect her from having to pay it."
The court should be able to make your ex get serious about paying his debt. "The divorce court can punish him very severely if he has failed to comply with an order of that court," says Bayer. "Judges get very angry when they are disobeyed."
Some people may tell you to try to take possession of the car so at least you have something. That may be one way to even the score with your ex, but Bayer doesn't recommend it. If you take the car and then go to court, your ex may argue to the divorce court that he is absolved from making the car payments as stipulated in the divorce decree.
If you don't go back to divorce court, you're stuck with the bill. You wouldn't be the first person left paying off a car for an ex-spouse or even ex-friend. This sounds like an option you can ill afford, however. You're far better off getting satisfaction from the divorce court.
Avoid bankruptcy if at all possible. The average car loan is not generally enough to warrant the cost, hassle and future repercussions of bankruptcy. It would be especially galling to go through a bankruptcy just because of your irresponsible ex.
Whenever possible, in a divorce you should avoid keeping your ex as a co-signer on anything. Your financial ties are not cut as long as you're both on even one account. A better plan, in retrospect, would have been to make your ex either refinance the car or sell it to pay off the loan.
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