How Divorce Can Complicate Auto Loan Debt and Relief Options


How Divorce Can Complicate Auto Loan Debt and Relief Options

Going through a divorce is never easy. It’s an emotionally draining process that also involves dividing up assets and liabilities. One area that can get really messy is dealing with auto loans that you and your spouse took out jointly. Trying to figure out who pays what and how to protect your credit can be a major headache.

In this article, we’ll break down how joint auto loans work in a divorce, look at options for managing the debt, and discuss relief strategies if your ex stops making payments. We know money issues are the last thing you want to deal with during an already stressful time, so our goal is to provide some clarity on navigating this tricky situation.

How Joint Auto Loans Work in Divorce

If you and your spouse co-signed on a car loan, you are both equally responsible for repaying the debt under the original loan terms. It doesn’t matter whose name is on the title or who drives the car – you both agreed to pay back the lender when you signed the loan documents.

This means if your divorce decree states your ex will take over the car payments, but they stop paying, the lender can still come after you for the missed payments since your name is still on the loan. They don’t care what your divorce papers say – you’re both on the hook.

The lender also has the right to repossess the vehicle if payments are missed. This can destroy both your credit scores in the process. Bottom line – a divorce judgment can’t remove you from a joint financial obligation like an auto loan.

Options for Managing Joint Auto Loans

When dealing with a joint auto loan in divorce, here are some options to consider:

  • Refinance the loan in one spouse’s name – This takes the other spouse off the loan, but it requires good credit and income to qualify.
  • Sell the car and use proceeds to pay off loan – Eliminates the debt but means both spouses need new vehicles.
  • Voluntary repossession – Returns car to lender but wrecks credit scores and still may leave deficiency balance.
  • One spouse keeps paying – Risky if they stop paying and lender pursues other spouse.
  • Include protections in divorce decree – Ex: requiring refinancing or repossession clauses.

Refinancing the auto loan is often the best option since it removes your financial liability. However, the spouse keeping the car needs strong enough credit to qualify on their own. This isn’t always feasible.

Selling the car makes sense if neither spouse wants to keep it or if refinancing isn’t an option. This eliminates the loan but means you both need to get new vehicles. It also requires you to come to an agreement on how to split any proceeds from the sale.

Voluntary repossession should be a last resort. It gets rid of the monthly payments but wrecks both your credit. The lender can also pursue you for any remaining balance if the car sells at auction for less than what’s owed.

Having one spouse keep the car and continue paying is risky. There’s no guarantee they will follow through on the payments, and it leaves the other spouse vulnerable. Some protections can be put in the divorce decree, like requiring timely refinancing or authorizing repossession if payments are missed, but these aren’t foolproof.

Relief Options if Your Ex Stops Paying

If your ex-spouse ends up defaulting on the joint auto loan, here are some options to deal with it while minimizing damage to your credit:

  • Take over the payments yourself – Prevents repossession but enables ex’s bad behavior.
  • Negotiate with the lender – See if they’ll waive fees or create a payment plan.
  • Debt consolidation loan – Combines debts into one lower payment.
  • Debt settlement – Settles with lender for less than full amount.
  • Bankruptcy – Wipes out debt but severely damages credit.

Taking over the payments keeps the repo off your record but rewards your ex’s neglect of their obligation. It also places significant financial burden on you.

Negotiating with the lender can sometimes help reduce fees and create a more affordable repayment plan. This requires their cooperation.

A debt consolidation loan or debt settlement are options to deal with the auto loan balance and any other debts you have. This can lower payments but also hurts credit.

Bankruptcy is a last resort that wipes out debts like the auto loan but devastates your credit score for years. It also involves legal fees and has long-term financial consequences.

None of these are great options, so the key is avoiding this situation by putting protections in your divorce decree. Requiring timely refinancing or authorizing repossession gives you recourse if your ex bails on payments.

Tips for Managing Joint Auto Loans in Divorce

Here are some tips to keep in mind when dealing with a joint auto loan during your divorce:

  • Consult an attorney about state laws and your options.
  • Prioritize refinancing the loan if possible to remove liability.
  • Don’t rely on a divorce decree to protect you from creditors.
  • Include clauses about missed payments and repossession.
  • Monitor payments closely and act quickly if ex stops paying.
  • Explore all relief options to find the best solution.
  • Communicate with lender early if issues arise.
  • Don’t enable ex’s neglect – take appropriate legal action.

Dealing with a joint auto loan in divorce is messy and frustrating, especially when an ex doesn’t hold up their end. By understanding your options, putting protections in place, and acting decisively if problems occur, you can limit the financial fallout.

Divorce is never easy, but hopefully this overview provides some guidance on navigating the complexities of joint auto loans. Knowledge is power, so arm yourself with information. And as always, consult an attorney to understand your individual rights and responsibilities.


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