Dear Bankruptcy Adviser, My ex-wife shared a loan for a motorcycle with me. I have made all payments for the entire life of the loan. The ex-wife has since filed bankruptcy, well after our divorce. I have entitlement to the title at time of pay-off as declared in our property settlement agreement. What are my risks moving forward? Would a voluntary repossession/surrender be advisable? I have no problem paying for the vehicle but feel at-risk because the lender has removed the account from online access, suspended statements and is treating me like the "bad guy" since she filed bankruptcy. Should I cut my losses or continue to pay with the prospect of a positive outcome? -- John
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Dear John, I find this question very interesting for two reasons: (1) you seem to suggest that you would be free from personal liability if you surrender the vehicle because your wife filed bankruptcy and (2) the lender treats you like you too are doing something wrong because your wife filed bankruptcy.
Many people think like you. People believe that one spouse or ex-spouse filing bankruptcy absolves the entire community of personal liability. The lender does not care that she filed as both you and your ex-wife signed the contract. While it appears that your ex-wife will be absolved of her personal liability to pay the motorcycle loan, you are not.
In the event that you do want to surrender the bike, you need to know whether the lender will be made whole. If the motorcycle is worth $10,000 and you owe $6,000, you could sell the motorcycle, pay off the balance and avoid any personal liability because the balance would be paid in full.
In many cases, the vehicle is worth less (and sometimes much less) than the loan balance. In those cases, the lender would take the bike back, sell it and send you a bill for the difference. Your wife's bankruptcy may protect her from paying the difference, but it does not protect you.
That being said, I just don't understand why the lender treats you so poorly. As you are still 100% liable on the balance, why can't you receive the same treatment as you were receiving prior to the bankruptcy filing?
The only answer I have ever received is that the banks just don't have the technology sophisticated enough to separate the joint account into an individual account. Because the lender cannot collect from her anymore, the account is "tagged" with a bankruptcy notation in the computer. While you are still able to make voluntary payments, you will be treated as if you, too, had filed bankruptcy.
I have also been given mixed answers from creditors regarding whether they will report your payments to the credit bureaus. Some creditors say that the payments made by the nonfiling spouse (you) will be reported to the credit bureaus. Other creditors say that all payment reporting will end.
It is an unfortunate Catch-22 because you can keep the vehicle but may lose the benefit to your credit score for making the payments. But if you surrender the motorcycle, the lender will report it as a repossession on your credit report and still demand payment.