Debts that are commonly divided in divorce proceedings are typical consumer debts such as mortgages, car loans, and credit cards. These types of consumer credit products are generally credit that is reported to all three major credit bureaus, and which can be a great source of damage and stress post-divorce.
In a divorce decree, the court assigns payment responsibilities to one spouse or the other, but it cannot amend or override the original contract signed by both spouses. In the credit world, this means that if your spouse retains the jointly held car loan or mortgage, it is still a joint account even after the divorce is final. Removing your name from the title or deed does not remove your name from the promissory note or contract.
Here is where it gets messy: your ex-spouse misses a few payments on the loan, and now you have late payment delinquencies reported on your credit reports. This can happen at any moment in time for the life of the loan which can be a very long time if we’re talking mortgages and car loans. The credit score formula will not take the “my ex-spouse is supposed to pay for that” argument into consideration, and neither will your creditors. Your score can drop significantly, often disqualifying you from obtaining a new mortgage or car loan for yourself.
This scenario can happen with any joint financial product that is seen on credit reports. Credit cards are much easier to control because you have the option of closing the account, and they are generally much easier to pay off when compared to a mortgage or car loan.
Can I be removed as a joint loan holder?
Your ex-spouse will have to refinance the loan under their name only. That can become very problematic as negative equity problems could prevent a new bank from refinancing the loan. Perhaps the sole income of your ex-spouse is not enough to qualify for the loan on their own. Or even worse, their credit rating is very low as a result of the divorce.
Protecting your credit:
To protect your credit you would have to terminate your liability with the bank. One option is to sell the house or car and pay off the loan. If that’s not possible, and you find yourself or your ex-spouse unable to refinance the loan, your only real option is to file for Chapter 7 Bankruptcy Protection. This eliminates the possibility of late payments affecting you in the future. As long as your ex-spouse continues to make payments, they get to keep the house or car.
If bankruptcy is not an option for you, the next best thing is to check your credit report and joint accounts once a month to make sure things are being paid on time. As you are still a joint account holder, there is nothing stopping you from calling the bank once a month and checking to see if the payments have been made. If there is a danger of being 30 days late, you at least have the option to protect your credit rating by making the payment yourself and then having your ex-spouse reimburse you. Not the most practical solution, but it works. I often advise clients to do this when they are in the middle of a major purchase, but run the risk of late payments due to jointly held debts which they don’t control.
2017 is here – and it really got me thinking about 2010. Breaking Bad was the top-rated TV series, foreclosures were at an all-time high, and President Obama enacted the Affordable Care Act, aka Obamacare.
What I specifically remember about 2010, was that the theme here in the office revolved around 2003…which meant that we carefully audited credit reports and asked our clients questions about the age of some of their debts specifically to find out if the debt may have gone into default on or before 2003. This would help us determine if the 7-year credit reporting statute would apply to any of the debts present on the credit report.
As you hopefully are guessing by now, we will have 2010 very present in our office this year as we begin to help consumers strategize their credit repair projects and it will revolve a lot around the year 2010.
That year was a tough year for the economy and subsequently for consumers. Jobs were scarce, credit was very tight, home values continued to plummet… remember? It was like the sky fell.
If you had debts go into default and sent to collection sometime in 2010, then 2017 is YOUR year of redemption. Did you have a home foreclosed/short-sold in 2010? That is supposed to be permanently deleted from your credit report this year. The same thing applies to credit card debts, auto loans, medical bills…etc.
Most consumers don’t remember exact dates and are unable to determine with any confidence if their debts are about to age out. Over the last 11 years, we have been able to perfect our craft and can confidently help consumers determine their correct dates and how to plan a credit repair plan with factual dates in mind. It’s super important, because you don’t want to spend money on a debt that goes away next month, nor do you want to wait on a debt thinking it goes away in June when it really goes away in December…for $30 we can audit your credit report and give you factual, clear, concise advice that will help make 2017 generate your best credit score possible. Contact us my calling 661-369-8130 or visiting our website.
I previously wrote in detail about the famous “7-year rule” – missed it? Check it out here: The Seven Year Rule
The “rule” of seven years is perhaps the most prominent credit report factoid known by consumers and the general public. It is actually severely misunderstood by almost everyone that thinks they know it.
A common statement I hear is “after seven years you don’t have to pay it anymore.” This hasty generalization is very misleading. The specific law allows for a creditor to report negative account statuses to the credit bureaus for UP to seven years. (7.5 years to be exact, more on that later.) This law only governs how long the information can remain on your credit report. It has nothing to do with the liability you have on the debt. You will always owe it.
The debt never actually expires, there is no “rule” or “law” that forces a debt to expire after a certain period of time. Most creditors and collection agencies simply give up collection efforts after they lose the ability to credit report an account. This is why consumers can sometimes be shocked when they receive a collection notice for a debt that is often 10, 12, or even 20 years old. Guess what? Technically you still owe that money, the collection agency just ran out of any meaningful tools to collect it. After seven years has passed, nobody will ever see it again on your credit report. It’s like it never happened…
Noww that we have cleared that up, let’s talk about the most important part of this seven year rule.
When does the seven year clock start ticking, and when does it stop ticking? The law clearly says the clock starts 180 days after the original delinquency that led the account to be charged-off or sent to collections. This is known as the “terminal delinquency.” Technically, that means the clock starts six (6) months after your very last payment on the account with the original creditor. Since I see credit reports every single day, I can tell you with certainty that even though the accounts can report for 7.5 years from the last payment you made, credit bureaus today are only reporting for exactly seven (7) years. Not 7.5, even though technically they can. Read the exact text in the FCRA here.
Here is how the seven year rule can apply to items on your credit reports:
Judgments – Seven years from the filing date whether satisfied or not.
Collections – Seven years from date of default with the ORIGINAL creditor, not seven years from when the collection agency buys or is consigned the debt.
Charge Offs – Seven years from the date of the original terminal delinquency.
Settlements – Seven years from the date of the original terminal delinquency
Repossessions and Foreclosures – Seven years from the date of the original terminal delinquency.
Late Payments – Seven years from the date of occurrence.
Can making a payment, or paying a collection reset the seven year statute?
A lot of consumers I speak with are afraid to pay off a collection or even speak to the collection agency because they fear doing so will re-age an old debt and reset the seven years. This is absolutely false, nothing you do can reset the seven years. Paying it won’t, calling them won’t, disputing it won’t. (A partial payment can reset the four year statue for filing a civil suit against you, but that’s a whole different topic we’ll cover in a future blog. )
Just because the FCRA and the law say that’s how long the items can credit report for, doesn’t mean things won’t report for longer. Credit bureaus are handling millions of files and mistakes definitely happen. Collection agencies can also “re-age” the debt (illegally) causing the reporting period to reset. It’s up to you to know your dates and hold the credit bureaus accountable to the reporting statute of limitations, AKA the seven year rule!
Turning 18 is a milestone for most teenagers, and mine was no exception. I was finally legally able to engage in activities teenagers salivate for, such as getting my own apartment, opening my own bank account, obtaining a credit card, and most importantly, trading in my vehicle for something a bit more desirable.
I went to a car dealership to check out some cars, and was quickly approached by a car salesman.
“Mr. Moreno, we will have to check your credit score to determine the terms of your financing,” I recall being told.
What? I had no idea what he was talking about, so I played along. I gave my personal information and waited anxiously while he went to his manager. I curiously watched as they stared at a computer screen and their eyes glinted with satisfaction.
“Congratulations, you’re approved! You have three paid off car loans with your credit union and your credit score is 800!”
I just turned 18. How could this even be possible? Did somebody steal my identity?
This scenario is an absolutely true story, and a growing problem within the consumer credit and finance industry. The technical explanation is the fact that I am a junior, with the same mailing address and name as my father. Fortunately for me, my father valued his credit profile and paid all his bills on time, and due to the similar identities, our credit profiles were merged together. Clearly, we have different Social Security numbers and dates of birth, so what happened?
The three major credit bureaus, Experian, Transunion and Equifax, sell and maintain personal information. They manage and move millions of files on a daily basis, and they often make mistakes. Father and son credit profiles can become one single profile. If you have a common name, your information can be on someone else’s credit profile with a similar identity, and vice versa.
When a consumer examines a credit report, and identifies something that does not belong there, Identity theft is blamed. However, if you look closely at the trade line, it is paid on time, as agreed. What crook is going to steal something and then pay for it? That’s the first sign of a mixed file. Previous addresses reporting on your credit report in places you have never lived? Another indicator.
While an 18 year old can start off with a synthetic 800 credit score, they can also start off with a 500 credit score if their credit twin just happened to have bad payment habits. It’s a serious, growing trend that we have seen locally. Seven out of 10 consumers who come to my office seeking identity theft advice are experiencing mixed credit file problems.
Fortunately, it is far quicker, and easier, to remedy a mixed credit file than it is to battle real identity theft. A simple correspondence to the credit bureaus requesting that they verify all key personal information including Social Security number, date of birth, and true legal name with the information the creditor has on file generally resolves the situation. There may not be a need for police reports, notarized fraud affidavits, or dealing with fraud investigators.
Check your credit report thoroughly, and often. The only free resource to obtain your credit reports is www.annualcreditreport.com; do not be fooled by imitators.
I asked the salesman if he had realized that I could not possibly have paid off car loans when I was 14. I knew something was not right. So I left, and began my journey to obtain my own 800 credit score.
— Anselmo Moreno is a credit consultant with Innovative Credit Solutions, a credit service organization registered with the California Department of Justice. Contact him at email@example.com. These are his opinions, not necessarily those of The Californian.