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How Divorce Can Impact a Bad Credit Auto Loan

Newlyweds Ken and Pamela thought they would be together to celebrate their 50th wedding anniversary. Ken came into the marriage with a nearly perfect FICO score with a background in computer engineering while Pamela had very little employment history and $75,000 in student loans to repay. Pamela was a college senior when they married.

After Pamela’s graduation and her new job assignment, Ken agreed to cosign a 72-month bad credit auto loan for Pamela since she needed transportation to get to work but could not qualify for a regular car loan. After 3.5 years of marriage, Ken and Pamela changed their minds about how long they wanted to stay together and Ken filed for divorce.

Pamela’s car loan would not be paid off for another 2.5 years, but Ken no longer wanted to be responsible for the loan. Pamela decides that she can’t make the loan payments without Ken’s help and she stops making payments. Ken is worried that Pamela’s refusal to make the payments may have an adverse effect on his credit score.

online-auto-loansKen has reason to worry. All lenders approve loans according to the information given at the time of the loan approval. They approved a bad credit auto loan for Pamela on the basis that she had a strong cosigner. The divorce decree renders each party responsible for their own car loans. The problem occurs when the party responsible for making payments stops doing so.

The lender has the right to hold Ken and Pamela responsible for the loan individually and jointly until it is paid in full. The loan agreement is a binding contract and the divorce decree does not change the responsibilities that Ken and Pamela took on when they signed the loan papers. If you find yourself in a similar situation, contact legal counsel since the author can’t render legal advice.

Roger and Denise jointly applied for a bad credit loan several years ago and decide to divorce. They agree to each pay 50% of the loan each month until the loan is paid in full. Denise and the kids move back home with mom and dad leaving Roger the car to get to work since he has child support to pay. Denise stops paying her 50% of the loan due to job loss and Roger begins a cycle of late payments or no payments at all.

Since the lender approved the loan on the basis of Roger’s and Denise’s income and they both signed the loan, the divorce decree does not dismiss Denise’s part of the loan payments especially since they both agreed to make payments after the divorce. However, Roger is still responsible for paying the loan. This type of agreement leaves both Roger and Denise very vulnerable to the other since a spouse can verbally agree to pay, but it’s sometimes difficult to make it stick.

These are just two common examples of how a divorce can impact a bad credit auto loan. All couples jointly enter into debt and also incur individual debt. Couples go into debt together without thinking that there will ever be a divorce. The best thing to do is to seek legal counsel whenever you have a question about your legal responsibility for a debt since this article nor its author is attempting to give legal advice.




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