After Divorce, Ex Leaves Joint Debts Unpaid

Dear To Her Credit,

My husband and I divorced in 2009. I was the only one who got a lawyer. We split the debt (credit cards, loans and so on) in half.

I have since been paying all of my part of the joint debt, but my ex never paid any of his. He lived in our home for two years and never paid the mortgage, which resulted in foreclosure. Ten months ago, he quit his job and stopped paying alimony and child support.

I couldn't keep up paying the bills, so three months ago I signed up with Consumer Credit Counseling Services and enrolled in their debt management program.

One of the credit cards for which he was responsible has a balance of $20,000. I am the primary account holder. I haven't heard from them in four years, but last week I called the credit union where the credit card is from and they said they are going to sue me and garnish my wages for over $21,000. The representative said he would cut it down to $6,435, or $535 a month for 12 months.

I don't have any extra money to pay this, but he said if I don't accept the offer they will sue me for the full amount and garnish my wages. The only way I can pay this is to withdraw or borrow from my 401(k) plan.

I am not sure if I should just let it play out and see what happens or take from my retirement. I also am afraid that I will be sued for the foreclosure on the home so I may end up having to declare bankruptcy in the long run anyway. I live in Ohio. I am trying so hard to get my life back in order and start over. Thanks for any advice.

- Cindy

Dear Cindy,

The last thing you want right now is for me to tell you what you've done wrong. However, to get out of this mess, it's important to see how at least some of it could have been avoided.

You're never really free of an ex-spouse as long as you have unpaid credit card and other debt together. So, whenever possible, don't "split the debt" during a divorce settlement. Creditors don't care about the particulars of your divorce settlement; they just want to get paid. Your creditors extended credit based no doubt on your good name, and they're not about to take their chances with Mr. Deadbeat. Can you blame them? Looking back, it would have been better to sell the house, cars and any other assets to pay off the credit card debts when you got a divorce -- even if you had to take a loss.

Second, when you have old debt you cannot pay, and you haven't heard from the creditor in years, it's not usually a good idea to call, especially if you're in a debt management plan, or DMP, with a credit counseling agency. The danger is that you could "reaffirm a debt" that was close to or past the statute of limitations. That means the statute of limitations clock starts all over again. In Ohio, the statute of limitations is six years. You may not have reaffirmed the debt just by calling. However, you may have if you said that the debt was yours or if you agreed to make payments. It is the responsibility of the credit counseling agency to handle the debts you cannot pay, so just turn this over to your credit counselor.

Please don't take money out of your 401(k) plan to pay off an old credit card. Retirement money is for retirement. It could take years to put that money back. By the time you pay penalties and interest on the amount you withdraw, it won't go as far as you think. Retirement accounts are generally safe from creditors, too, which is one more reason to leave them alone. When you're trying to figure out how to pay credit card debt, pretend your retirement accounts don't even exist.

You generally can deal with debt in four ways: contest it, pay it, negotiate it or have it discharged in bankruptcy. If it's in your name and it's not past the statute of limitations, it's hard to contest. If the only money you have to negotiate with is your retirement account, forget it. Bankruptcy ... let's hope it doesn't come to that. The credit counseling services can help you deal with collectors, and you can read up on how to deal with them too.

You live in a so-called recourse state, which means you could be sued for the shortfall on your home foreclosure. If that's true and the amount is insurmountable for you to pay, you could be forced to consider bankruptcy. That would be a difficult decision, especially after you've tried so hard to start over and pay off your debts. Don't jump to the conclusion you need to file for bankruptcy, however. Lenders decide whether to pursue a debt based on their own self-interest. It's not cheap to file a lawsuit against you, and if you have no assets to speak of, they may decide to pass.

Ideally, your ex should be the one to pay off these debts. Counting on him has turned out to be far from ideal, however. If he has any assets, I recommend you sue him. He failed to live up to the terms of the divorce settlement, which the courts don't take lightly. If he's doing nothing but sinking lower into insolvency, however, you may not gain anything by taking him to court.

One thing you've done right was to sign up with Consumer Credit Counseling Services. That shows you're serious. Don't give up after you've come this far. Every time you get rid of an old joint debt, you're one step closer to being free of the past. Good luck as you continue on your new, independent financial life.