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Debt Consolidation
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DIVORCE AND DEBT
Featured below is information regarding paying off
individual and
joint debts during a divorce. If you are
getting married, or already are, it would be a good idea
to review the information on this page so that you know
what types of accounts are going to be best for you and
your spouse and what you can expect if the relationship
does not last.
Joint Account:
This type of account will consider your income,
financial assets, and credit history, as well as your
spouse's. Therefore, you both are going to be
responsible for the debt if it goes unpaid. Creditors
report both names listed on joint accounts to the credit
bureaus.
Advantages/Disadvantages:
An application for any type of loan or credit
that lists two people applying may be stronger
than if just one person was applying. As previously
mentioned, since two people applied for the credit, both
are going to be responsible for the debt. Even if a the
couple goes through divorce, they are both going to
be equally obligated. Former spouses that decide
they don't care about their credit and run up bills on
joint accounts are going to hurt their ex-partner's
credit as well.
Individual Account:
This type of account only considers your income, assets,
and credit history. No matter if you are married or
single, only you are going to be responsible for paying
the debt. This account will only appear on your credit
report file. However, if you live in a community
property state (Arizona, California, Idaho, Louisiana,
Nevada, New Mexico, Texas, Washington, or Wisconsin), it
is likely that you and your spouse are going to be
responsible for all debts that incur during the
marriage. Therefore, the individual debts of one spouse
may appear on the credit report of the other.
Advantages/Disadvantages:
It may be difficult for you to exhibit a strong
financial picture without your spouse's income if you
are not employed, have a low paying job, or work
part-time. However, if you do open an account and you
are responsible with the account, you will develop a
good credit rating. There are things you can do to
help improve credit ratings.
---Account "Users" of an Individual Accounts
If you open an individual account and your spouse is
an account 'user', the creditor must report that your
spouse's information to the bureaus. It is likely that
the credit history of an authorized user will also be
reported.
Advantages/Disadvantages:
User accounts are convenient for those that
would normally be able to qualify for credit, i.e.
students, domestic engineers. It is important to note
that although they are using the account, they are not
contractually responsible for paying the debt.
If You Divorce
It is crucial that you pay close attention to the
status of all of your accounts, individual and joint
when going through divorce. Make sure that payments
continue to be made to all accounts. Don't assume a
joint account is being paid by your spouse. Make sure it
is being paid. As long as there's an outstanding balance
on a joint account, both names on the account are going
to be responsible.
If you divorce, it would probably be a wise decision to
close joint accounts and take your spouse off any account
where they are an authorized user. You can also
ask your creditors to covert joint accounts to individual ones.
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