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Question: My Husband Has a Motorcycle Loan in My Name That I Did Not Sign For. I Have Knowledge of the Loan But Did Not Sign For It. We are Having Marital Problems Now. I Have Disputed This Loan With Equifax and They Will Not Remove It. He is Not Making Payments On Time. What Can I Do?

Answer: This is a very unfortunate situation because it sounds like even though you didn’t personally sign for the motorcycle loan, you knew that you husband was getting the loan in your name (i.e. using your credit in order to get the loan). Even if you didn’t know what he was doing, your recourse and options are going to be limited because I assume that many months (maybe years) have passed since he originally got the loan. The time for you to speak up about it – or to let creditors or the credit bureaus know that you did not authorize the loan – would have been immediately after you learned of this. If he took out a loan without your knowledge, authorization or consent, then that is identity theft. If you can prove that it was fraud, perhaps by showing that it was not your signature on the loan contract, then you may have an outside chance at getting this loan off your credit. However, that may be a long shot. Weren’t the statements coming to your house each month and didn’t you see them? Doesn’t your husband live in the same home with you and didn’t you ask how he got a motorcycle? How long has it been that he’s had that motorcycle? I know these questions may sound harsh. But from the financial community’s perspective, it may seem like you are complaining about being on the loan now that you and your husband are having marital problems and he is not making the payments.

Under the law, if your name is on a credit account with your husband, (such as a mortgage, credit card or car loan), then you are both liable for that debt – even if you divorce. Right or wrong, that’s the law – and not just in community property states either.

Evaluating Your Other Options

Since your husband is not making timely payments, you have a handful of other options:

a)      make the payments yourself – and preserve your credit rating;

b)      try to convince him to pay on time

c)      see if you can work out a voluntary repossession, where he would turn the motorcycle back into the lender/finance company (but your credit would be impacted)

d)      consider whether a financially responsible family member or friend can take over the payments and use the motorcycle, which will relieve your husband of paying each month and may also keep your credit intact

What to Do With the Credit Bureaus

Additionally, if you think that divorce is likely, I would start closing out all joint accounts and notifying your creditors of your impending or actual separation. You should also put a credit freeze on your credit files so that no new credit can be obtained in your name. Lastly, pull your credit records from Equifax, Experian and TransUnion, and sign up for a good credit monitoring service for the next year or so. You want to make sure there are no other accounts opened by your husband of which you may not have been aware.

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I’m sorry to hear about your bitter divorce and the financial problems you’ve been experiencing. I sympatize with you on both fronts – having been through both ordeals myself. Moreover, I also know from firsthand experience – as an entrepreneur too – how difficult it is to pay those dreaded estimated quarterly taxes.

As you may know, as a self-employed individual you are obligated under the law to pay federal income tax, along with Medicare and Social Security taxes, more commonly called self-employment tax. How much you pay in federal taxes is based on your adjusted gross income. The current rate for self-employment tax is 15.3% on the first $106,800 you earn. Of course, you also have to factor in any required state and local taxes, depending on where you live.

The deadlines for filing and paying your quarterly estimated taxes are: April 15, June 15, September 15 and January 15 (or the next business if those days fall on a Saturday, Sunday or legal holiday).

If you can’t pay your quarterly taxes, don’t make the mistake of not filing at all or ignoring your situation. That will just worsen the problem. A failture to file taxes and pay what you on on time could result in late penalties and interest of 25% or more.

So if you simply don’t have the money, try one of these options:

1) Request an extension of time to pay
Extensions are usually granted for 30 to 120 days. You still get socked with penalties and interest, but they’re usually less than what you pay in an installment plan.

2) Ask for an installment agreement
With an installment agreement, you request a payment plan with the IRS for the most recent tax year. You can get a payment plan for as long as 24 months and not have it impact your credit rating, in terms of the IRS putting a lien against you or reporting you as delinquent to the credit bureaus. If you owe $25,000 or less, just go online to the IRS website and fill out the Online Payment Agreement.

3) Consider a loan to pay your tax bill
A bank loan or home equity loan (if you can get either) will carry a much lower interest rate than paying the IRS off over time under and installment agreement.

4) Ask the IRS about an offer in compromise
The IRS usually only grants these when:
a) a person can show that they have severe economic hardship; or
b) it’s doubtful that the taxpayer could pay what’s owed over the time the IRS has to collect the debt

Start by asking your accountant for which path he/she would recommend, since that individual is likely to be very familiar with your situation. Or, if you don’t use a CPA, call the IRS directly at 800-829-1040.

Maintaining a good credit rating while going through divorce can be very tricky. On the one hand, even if the two parties who are separating can agree on how assets and liabilities (like that mortgage) are supposed to be split, that does not mean that your creditors are bound to those terms. In fact, whatever deal you work out with your soon-to-be ex-spouse has no bearing whatsoever on your legal responsibility to repay debts for which you and he were both co-signers. In a nutshell, this means that if the two of you co-signed for credit cards, your house, a car note, or anything else, then your creditors can still legally come after either one of you for repayment.

Let Your Ex Refinance the House ASAP

If what you’ve stated is correct, and the bank is willing to take you off the loan once your divorce is finalized, then you are in a far better position than most people. Frankly, lenders don’t just automatically remove people from loans simply due to divorce. In your situation, it could be the case that your husband has already shown the bank his finances (or gotten pre-qualified for a new mortgage), and the bank knows that he could qualify for a home loan on his own. If so, he can simply refinance your existing mortgage upon your divorce and put the house in his own name. Either way, it is clear that the longer it takes to get that divorce decree, the more potential exposure you have in terms of protecting your credit rating. Conversely, the sooner you can get that divorce decree, the less risk you face that your credit could be ruined by his potential failure to pay.

How to Protect Yourself

When a home is involved in a divorce proceeding, and both individuals are on the mortgage, the single best way to protect the credit rating of both parties is to sell the home. This way, the bank gets paid off and your joint obligation is satisfied. Of course, the two of you will have to decide how to split the proceeds from the sale of the house – another potentially thorny issue. But it’s far less dicey than sweating it out month after month, and keeping your fingers crossed hoping your ex will pay the mortgage as agreed.

I realize, of course, that for a host of reasons, some people may not want to sell a home, even if they are divorcing. Maybe the house still has sentimental value, to one or both parties. Perhaps kids are involved and you want to keep the house to provide stability to the children. Or maybe you’re reluctant to sell simply because it’s a rotten housing market in your local neighborhood. Whatever the case, selling may not be practical or feasible. If it isn’t, consider another option.

Tighten Up That Property Settlement Agreement

As stated, your divorce agreement – even after it’s signed off by a judge – doesn’t have the legal right to change the terms of your original mortgage agreement. Those terms and repayment stipulations were locked in when you both signed for the home loan. What you can do, however, is include in your divorce agreement (sometimes called a Property Settlement Agreement, or PSA) a strongly-worded paragraph that addresses several aspects concerning the house. First, your PSA should note that your ex-husband is assuming full ownership of and liability for the home. Next, the PSA should state a certain effective date that he is solely responsible for the house – including the mortgage, property taxes, maintenance on it, etc. Additionally, include a clause indicating that until the divorce is finalized, the mortgage company is to also give you a copy of the monthly statements. That way you can keep an eye on things and bring up the issue early on if he doesn’t pay.

Consequences of Non-Payment

Lastly, the PSA should note financial penalties and consequences that are imposed in the event that he doesn’t pay. For example, for every missed payment – or every payment that’s 30 days late – he might be forced to make a certain cash payment to you. Moreover, you could insert a phrase stating that his failure to pay the mortgage effectively amounts to a judgment in your favor against him. If it turns out that you ever have to pay the mortgage company to preserve your credit rating, you can take your ex to small claims court, or use that judgment against him to garnish his wages and seek other legal remedies. A good attorney will be able to help you word this appropriately in your Property Settlement Agreement, and advise you about your state laws.

Why Your Separation Date Is Critical

One final bit of advice: You stated that you will be moving out of the home in the future. Be sure to consult an attorney in your area for insights into two areas that may be impacted by your planned move. First, if you have kids, and you want to keep custody (or even have joint custody), find out whether or not moving would in any way jeopardize your ability to retain custody. Additionally, understand how your state looks at your “Separation Date.” Is it the date divorced papers were filed, the date you moved out of the house, or simply the date that you formally told your spouse that you wanted a divorce? Different states count your separation date in different ways. But this date is a vital legal benchmark. This date is crucial because it can determine a host of financial aspects, such as your credit, alimony, pension benefits, the date at which the market value of the home is assessed, and so on. In general, most states won’t hold you responsible for debts your ex-spouse incurred after your separation date.  But debts amassed before then are often considered owed by both parties.

With medical collection activity on the rise, it is definitely possible that a hospital, clinic or healthcare provider could come after you to pay off healthcare bills incurred by your former spouse. In fact, in many states, healthcare providers use common law doctrines to force spouses of patients to pay outstanding medical debts. Even if you don’t live in a common law state, many states consider a wife or husband responsible for a spouse’s medical bills, provided the two were living together when the medical bills were generated. That’s the case in New Jersey, where I live. Here, the Supreme Court has ruled that both spouses are liable for the “necessary” expenses incurred by the other while living together; and medical services are considered “necessaries.”

Fortunately, there are some efforts underway to safeguard spouses (and ex-spouses) when a wife or husband has racked up big medical bills. For example, many consumer protection agencies advocate exempting spouses from medical debts altogether.

What Your Former Spouse Should Do

Meantime, to protect yourself, talk to your former wife (if that’s possible) and encourage her to set up a repayment plan for her medical debt. Suggest that she review her medical bills closely to make sure she wasn’t overcharged or double-billed for anything. And share with her the resources listed below. Ultimately, of course, what your ex-spouse does or does not do is out of your control. But here’s what you can control.

How to Protect Yourself

First off, keep close tabs on your own credit files. Signing up for a good credit monitoring service is a way to do this. (I use credit monitoring from FreeCreditReport.com and myFICO.com). Unpaid medical bills don’t usually appear in your credit reports. But if they go into collections, then those accounts will be listed in your Equifax, Experian and TransUnion credit files. So be especially watchful for any collection accounts that may pop up in the future that you might have to dispute. The Federal Reserve reports that more than 50% of collection records and 20% of lawsuits that appear on credit reports are due to medical debts.

Aside from monitoring your credit, you should contact your health insurance company to inquire about any medical invoices that they didn’t pay. Perhaps there was an oversight, a missing claims form, or simply some information that you can supply that would cause the insurer to cover some of the outstanding healthcare bills.

Know the Worst-Case Scenario

Also, examine any of her healthcare bills you may have copies of – to see if there were clauses or fine print that obligated you or her (or both of you) to pay whatever was not covered by insurance. Sometimes, healthcare providers will spell out what recourse they may pursue in the event of non-payment. Aside from damaging your credit will collections, judgments or lawsuits, healthcare providers may try to garnish wages, seize assets or put a lien against your home. These are extreme tactics, and will certainly not be used in every case. But you need to be aware of all possibilities. In the end, how aggressively a healthcare provider pursues a debt will largely depend on the laws in your state, the amount of debt owed, and the extent to which the provider thinks they can shake money out your or your ex spouse.

Resources for More Help

Lastly, if you do get socked with your former spouse’s medical bills in the future, reach out to a variety of consumer organizations that can help you with this issue. Some groups that have fought wrongful medical billing practices include:

Access Project             http://www.accessproject.org

Bill Advocates              http://www.billadvocates.com

Consumers Union         http://www.consumersunion.org

Hospital Debt Justice    http://www.hospitaldebtjustice.org

National Consumer Law Center            http://www.consumerlaw.org

To raise your credit scores, it’s always best to pay down debt, as opposed to shifting it around. However, for most people trying to boost their credit rating, it’s not always possible to instantly pay off all their credit card debt. So what can you do in that case? You can shift debt around in order to strategically lower your credit card utilization rate.

Remember that 30% of your FICO credit score is based on the amount of credit card debt you’re carrying versus the amount of credit card debt you have available (i.e. your credit utilization rate). For example, if you have $15,000 in available credit on all your cards, and you’ve charged $10,000 on those cards, you’ve used up two-thirds of your available credit and your credit utilization rate is 67% – not good.

What Is The “Ideal” Credit Utilization Rate

To increase your credit scores, it’s imperative that you slash your credit utilization ratios. No one knows the precise magic number when it comes to credit utilizations rates; FICO doesn’t reveal the exact “ideal” credit utilization rate. However, we do know that higher credit utilizations rates generally translate into lower FICO scores. And statistically speaking, those with lower credit utilization rates have higher FICO scores. Therefore, conventional wisdom is that it’s best to keep your credit utilization rates at a maximum or 25% to 35% for an optimal FICO score. If you maintain zero credit card debt, by paying off your credit card bills in full each month, realize that you may not have a 0% credit utilization rate simply because of three timing factors:

• the date when you pay your bills,
• the date when your creditor reports your payment history to the credit bureaus;
• the date that your credit report is pulled to generate a credit score

Besides, you need not worry about having a 0% credit utilization rate simply because, believe it or not, individuals with a 0% credit utilization rate actually have lower credit scores – an average credit score of just 678, versus average credit scores of 745 for those with credit utilization rates ranging from 1% to 10%, according to data from CreditKarma.com, which analyzed a random sample of 70,000 credit scores.

How is it possible that those with a 0% credit utilization rate have average credit scores of only 678 points? CreditKarma.com suggests a few likely causes. First, it’s possible  that individuals with a 0% credit utilization rate have no credit cards at all. This could actually hurt their credit rating, because remember that 10% of your credit score is based on the mix of credit that is contained in your credit files. Having a credit card, along with different forms of credit, shows that you can responsible manage various types of credit simultaneously. Another plausible reason for that 0% credit utilization rate is that those individuals never use their credit cards at all. (Another reason to use your credit cards on occasion, just to keep them active).

No Money … No Problem?

If you don’t have the money to pay down debt, here are the four chief strategies that you can use to lower your credit card utilization rates:

• Use a Home Equity Loan

Getting a home equity loan or an equity line of credit can be a smart strategy for a few reasons. The interest rate on home equity loans (currently in the 6% range) is far less than what you’re probably paying on your credit cards (likely in the 15%-plus range). Additionally, the interest on home equity loans is tax deductible up to $100,000; the interest levied on your credit cards is not. Finally, from a credit-scoring standpoint, mortgage debt is treated more favorably than credit card debt, so converting that consumer debt is likely to positively impact your FICO score, by helping you reduce your credit card utilization rates.

A Strong Caution To Those Using Home Equity Loans to Pay Off Credit Card Debt

If you decide to consider this strategy, I have to issue a very serious word of caution: Don’t pay off those credit card bills, and put your home at risk with an equity loan if you’re just going to go back out and run up your charge cards again. The decision to take out a home equity loan is one that should not be made lightly. I believe that you should only use your home equity to pay off debt under two circumstances:

1)   You got into credit card debt because of what I call “The Dreaded D’s: (downsizing, divorce, death (i.e. a main winner in the family died), disability, disease, or some other disaster, like a business failure or lawsuit); and

2) The situation that threw you into debt has now been rectified. (For instance, you were downsized, but now you have a job, or you faced a disease or a disability, but now you’ve bounced back from your medical problems).

If you got into debt for other reasons of your own doing, such as over­spending, and if you haven’t learned how to get those impulses under control, I urge you to refrain from tapping the equity in your home to pay off credit card debt. I’ve heard heart-breaking stories of people who paid off their credit card debts by converting those obligations into mortgage debt – only to keep spending, not change their financial habits, and ultimately wind up losing their homes in foreclosure. I don’t want this to happen to you.

• Shift Balances From One Card to Another Existing Card

Shifting debt from one credit card to another is more art than science, but done properly, it can boost your credit scores, and also save you lots of money (particularly if you’re taking debt from one high interest rate card and putting it on another lower interest rate card).  The key here is to minimize the debt you’re carrying on a card that has a high credit utilization and transfer that debt onto a credit card with a zero balance or a low balance. For example, if you have two cards, and each has a $5,000 credit limit but one has a $3,000 in charges, and the other one only has $500, your current credit utilization rate is 35% ($3,500 divided by $10,000). You may be able to positively impact your credit scores, however, if you spread out some of that $3,000 in credit card debt from the first card. By shifting $1,000 of that balance onto the other card, your overall credit utilization rate will still be the same: 35%. However, the credit utilization rate for the first card will drop from 60% to 40%. Meanwhile, the second card will have a new credit utilization ratio of 30%.

• Open A New Credit Card Account

Opening a new credit card account can lower your overall credit utilization ratio, even if you don’t charge anything additional on that new credit card. Yes, the inquiry will appear on your credit report, and you will likely take a hit to your credit as a result. But having that additional line of credit can make up for the ding you take from the inquiry. After all, your credit utilization ratio comprises 30% of your credit score, and inquiries only account for 10% of your score. Using the same example above, assume you have those two credit cards with a total of $10,000 in available credit, and $3,500 in charges made, for a current credit utilization rate of 35%. If you open a new credit card account with a $5,000 credit limit, now your overall credit utilization rate drops to just 23% because you’ve charged $3,500 and you have a grand total of $15,000 in available credit.

• Secure an Increase in Your Existing Credit Card Line(s)

A fourth and final strategy to bolster your credit utilization rate is to simply ask your existing creditors for an increase in your credit lines. The principle behind this is the same as opening a new credit account. Essentially it boils down to you having more available credit in order to improve your standing in the eyes of the credit scoring world. Amid the credit crunch, it’s likely that your current creditors may do a “hard” pull of your credit reports. Or perhaps they won’t if they’ve already been reviewing and monitoring your credit files – as many of them routinely do. You’ll never know until you call and ask for a credit line increase. In the process of doing so, you can flat-out ask the customer service representative if it’s necessary for them to pull your credit record. That way you’ll know whether or not an inquiry will be generated, and if it’s worth it for you to use this strategy.

Before you try this option, some more research from CreditKarma.com is worth examining. CreditKarma.com wanted to see whether there was a correlation between people’s credit scores and the credit limits set by banks and other credit card issuers. And sure enough, there is. Credit Karma samples more than 500,000 credit card accounts in June 2009, and compared average user credit limits with their credit scores. The results showed that across all credit score ranges – from bad credit to great credit – consumers with higher credit scores had higher credit limits.

Credit Scores and Credit Card Limits

601 to 620

For example, those with credit scores ranging from 601 to 620 had an average credit limit of $1,765.

661 to 680

Individuals with credit scores ranging from 661 to 680 had an average credit card limit of $3,305.

701 to 720

Those with scores ranging from 701-720 had average an average credit limit of $5,449.

761 to 780

Meanwhile, those with credit scores from 761-780 had an average credit limit of $7,464.

801 and higher

And those with credit scores of 801 and higher had an average credit limit of $12,175.

What’s more Credit Karma found striking differences among the average credit card limits set by various companies. Credit Karma said that based on its data of the top 5 credit card issuers, Bank of America had the highest average credit card limit at $11,288, while Capital One had the lowest average credit limit at $3,524.