Divorcing and Debt

Going through divorce is an emotionally tough time adding to the pressure is the financial complexity of modern relationships, a few shared tips may help ease some of the confusion...

Finding Out What is Owed and to Who

You may already know what is owed since most couples do, although, if your spouse has been secretive about financial affairs, or if your spouse is taking on additional debts, you may be in dark with the exact amount of debt involved. Getting a copy of your credit report can be a great start. Who knows, you and your spouse may have a shared credit history that you are unaware of and, getting your credit report from all the appropriate agencies is probably a good idea.

Working with Credit File Reports

If your credit is damaged, be wary of companies that promise to repair your credit rating for you. For a fee these companies offer to clean up your credit report so you can get approved for finance again although generally the truth is, in a lot of cases, they can't deliver.

No one can legally remove accurate and timely negative information from a credit report. But the law does allow you to request a re-investigation of information in your file that you dispute as inaccurate or incomplete.

There is no charge for this.

According to the Fair Credit Reporting Act:

• You are entitled to a free copy of your credit report if you've been denied credit, insurance, or employment within the last 60 days. If your application for credit, insurance, or employment is denied because of information supplied by a credit bureau, the company you applied to must provide you with that credit bureau's name, address, and telephone number.

• You can dispute mistakes or outdated items for free. Ask the credit reporting agency for a dispute form or submit your dispute in writing, along with any supporting documentation. Do not send them original documents.

Clearly identify each item in your report that you dispute, explain why you dispute the information, and request a re-investigation. If a new investigation reveals an error, you may ask that a corrected version of the report be sent to anyone who received your previous report within the past six months.

When re-investigation is complete, the credit bureau must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the credit bureau cannot put the disputed information back in your file unless the information provider verifies its accuracy and completeness, and the credit bureau gives you a written notice that includes the name, address, and phone number of the credit provider.

If the re-investigation does not resolve your dispute, have the credit bureau include your version of the dispute in your file and in future reports.

Freezing Debt

Once your debt is identified, your main goal is to keep it from getting worse and prohibit a barrage of new charges appearing on your statement.

An easy and quick way to do this is the time-honored adversarial divorce technique of cutting off the credit cards. But, prior to taking that step, it is important to inform your partner.

If you and your are cooperating with each other, see if you can't agree on a card that will remain in effect for designated purposes subject to designated limits on spending. Pre paid credit cards may be useful in this area.

The Choices

You have two choices as you deal with the payment of your debts:

1) Agree to pay them off immediately or

2) Agree to be equally responsible for them.

Paying Off Debt

Assets can be sold to pay off debts immediately and may be a simpler, cleaner and neater for everyone involved.

Equal Responsibility Through Debt Consolidation

If you both agree to be responsible for your debt, and you do not have property or assets to liquidate to satisfy the debt, an easier way would to be debt consolidation. The counselor will help you both identify the debts owed, devise a strategy for getting out from under them, negotiate, or eliminate your interest rate and perhaps be able to cut your payments by up to 70%.

Three Loan Pitfalls when Consolidating and Refinancing

"Risk-based pricing" Lender

This is all the rage now among lenders. They lure people in with promises of quick and easy loan approval, and they usually don’t deliver what they promise. The problem is that the interest rates attached to these quick and easy loans may be sky-high, sometimes in excess of 20 percent a year. And be cautious for penalties or increased interest rates if you're late with a payment.

Home Equity Loan

Home equity loans make a great deal of sense for many purposes. Because they're secured, you can usually get a lower interest rate on them, and the interest is often tax deductible. The problem with home equity loans flows from their advantage: they're secured. If you fall behind on a home equity loan, your lender can grab your house.

Temporary "low-ball, opening" Rate

Often called honeymoon rates (possibly not appropriate term in this situation!). Question time - does it really matter what your lender charges you for the first six months, when you're going to be paying on average for several years? You need to consider the total cost over the life of the loan. If you don't know what this is, insist that your lender explain it to you before you sign on the dotted line. If a lender is advertising a very low or even zero rate as an introduction, be very cautious because you may end up paying for it later.

Originally submitted by: S. Lieberman