Divorce marks a huge change in life and, for some, brings a newfound freedom. However, freedom from your former spouse doesn't necessarily mean freedom from their debt.
During your divorce proceedings, it may have been ruled that certain properties were to be awarded to you or your ex. However, if you are both listed as borrowers on any loans associated with those properties, there is still more work to be done.
Divorce Unbinds You, not Your Debt
Unfortunately, when you part ways from your former spouse, it doesn't mean that your debts part ways too. Lenders do not recognize divorce decrees, so while the court judgment will be legally binding for you and your spouse, a creditor or lender will consider you to be responsible for the loan as long as your name is on the contract.
This means that if your spouse defaults on the payments for a car that was purchased jointly, the lender has every legal right to collect the amount owed - plus any additional fees - from either or both of you. And any reported delinquencies will negatively impact both of your credit scores.
Furthermore, even if your spouse is making on-time payments, your credit rating will still be impacted by any joint accounts. As long as your name remains on these accounts, they will appear on your credit reports and affect your debt to income (DTI) ratio when you apply for a loan.
Breaking the Chains
While we cannot provide you with any legal advice, it may be in your best interest to have your name removed from as many joint accounts as possible, preferably before the divorce is finalized. However, that may be easier said than done.
In order to be released from a loan contract, your former spouse will need to refinance the loan. But, in order for them to be approved, they will need to be able to qualify with their individual income and credit score. If they cannot qualify, you may need to come to an agreement to sell off the property (such as a car or home), and settle the remaining balance owed on the loan.
Your Future Matters
If your credit has been damaged because of a divorce, Drivers Lane can help. We have an experienced nationwide network of car dealers that work with buyers with unique credit situations. All you need to do is complete our fast, secure and obligation-free online application, and then we will connect you with a dealer that can help you. Get started today.