Photo (cc) by Alex E. Proimos
Here’s one more reason to discuss money early and often before and during your marriage. It’s also a reason why you might want to avoid getting hitched in “community property” states…
After a divorce, my credit rating suffered. I was stuck with most of the credit cards my ex-wife ran expenses up on. I could not pay all of the bills (hers and mine). I talked to the creditors, they just said it was my responsibility, end of discussion. I did the best I could. The creditors I could no longer pay sold or charged off the debt. My credit rating went from very good to very poor. Now one of the companies that bought one of the debts has reported [it] on my credit report. I am down already, now I am getting kicked, too. My question is: Can a debt that has already been reported by the original creditor be reported again by a company that bought the debt? How can any of us get out of this bad credit situation if this starts happening? I would appreciate any advice on this matter.
Here’s your answer, Jerald!
Before we get to Jerald’s question – can a debt reported by one creditor be reported by another? – let’s talk about the first part of his note. Jerald says, “I talked to the creditors, they just said it was my responsibility, end of discussion.” Here’s my first advice: Don’t bother asking a creditor if a debt is your responsibility. Many creditors – particularly collection agencies – will always say a debt is your responsibility, even if they know it isn’t. Their job is collecting money, and they’ll collect it from you, your mom, your neighbor, your dog, or some stranger walking down the street.
Want to know whether you’re legally responsible for a debt? Ask a lawyer. Anyone else could either be lying to serve their own purposes or wrong.
Jerald typically can only be “stuck” with his ex-spouse’s debt in one of four situations:
- He applied for the debts in question together with his ex. In other words, they’re joint account holders. In this case, the debts are as much his as they are hers, regardless of who actually used the plastic.
- He cosigned or otherwise legally agreed to pay these debts if she didn’t.
- He was divorced under the laws of a community property state: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
- His divorce decree stated that he was responsible for his ex’s debts.
In most other situations, you’re not responsible for someone else’s debt. But you’ll need to prove that to collection agencies to get them off your back – and to credit reporting agencies to get the debt off your credit history. If you need a lawyer to get collection agencies off your back, check out Abused by a Collection Agency? Get a Free Lawyer. If you need a debt that isn’t yours removed from your credit history, see 3 Steps to Improve Your Credit History.
So the first thing Jerald should do is give a quick call to a lawyer and verify that he’s responsible for these debts. I’d suggest starting with the one representing him in the divorce.
Now let’s address his question…
Can a debt that has already been reported by the original creditor be reported again by a company that bought the debt?
Short answer: Yes. As I said in last week’s Ask Stacy column, when a creditor gives up and charges off a debt, they often sell the uncollected debt to a collection agency. The collection agency then begins attempting to collect the debt and as a result may report it to credit reporting agencies.
While this may make it seem as if the debt is being shown twice, it actually isn’t. When the original creditor gives up, they change the debt on your credit report from “open” to “charged off,” which tells anyone looking at your credit history that the account is closed. When your creditor sells that debt to a collection agency, however, it becomes “open” again, because it is: The money is now owed to them, and they’re trying to collect it.
If both you and your ex are legally responsible for the debt, they can report it in either or both of your names, because either or both of you owe it.
Bottom line? Be careful who you open credit with, always know what you’re responsible for, and if you see a divorce on the horizon, cancel any joint credit card or other loan accounts. Because if you signed the credit application, you’ll be responsible for the bill.