Help me fix my debt fiasco
December 7, 2012 10:12 PM   Subscribe

Please help me get my financial situation in order during a separation from my husband. Looking for advice and suggestions from your own experience, or factual knowledge of "legal separation" in Washington state. Also looking for personal experiences relating to credit counseling, credit attorneys, etc.

Sorry this will be long and most likely confusing, since I am confused as to what I am even asking here.
My husband and I have physically separated (living apart) due to many relationship issues we would like to resolve, but our ultimate goal is to overcome these challenges and someday get back together. That's all you really need to know about the emotional aspect of this real questions have to do with legal and financial issues.

First: we do NOT want to get divorced. Washington state has something called a legal separation, which we believe would allow us to untangle our finances while staying married and keeping me on his insurance, which is vital for treating a long term medical issue I suffer from. I am looking for confirmation from anyone who has done this personally, or advice from legal types whether or not this will work. He and I both have major credit issues that date back to before we were married, and have continued to haunt our relationship. If we were to become legally separated, would this allow us to dissect our finances, leaving each of us only responsible for any personal debt accumulated BEFORE we were married? The debt we have as a couple is minor compared to our "old" debt.

My second question is: what is the best option for paying down my own debt and rebuilding my credit? I know the best advice is to consult a professional, but I am so confused as to which one I should ask. My options seem to range from shifty looking debt consolidation services, credit attorneys, and bankruptcy. I honestly feel that I could pay my debt off if I found the right way to do it, bankruptcy is a last resort for sure. I have some debt I do not want to include in this arrangement, mainly student loans. I basically have credit card debt I have not paid on for years (yes, this is really embarrassing, but I really do want to rectify the situation). I don't make a lot of money, but I also have few expenses beyond rent, and I could afford 300-400 dollars a month to repay my debt. I need to do something soon, as my wages have started to be garnished, and now that I am supporting myself without my husband's help, I need to keep my income as high as possible.

Feel free to ask any questions, I will not threadsit, but will check back periodically. You can also email my account here on Metafilter. Thank you so much for any help you can give me.
posted by virginia_clemm to Work & Money (7 answers total) 2 users marked this as a favorite
This is just what I know from personal research and I'm not a lawyer or expert at all.

Most or probably all debt consolidation services can't/won't work with you once you're getting garnished to this extent because the credit card companies have no motivation to make a deal. If they're getting more now than they would be if you were paying 300-400--and it's guaranteed--why would they take the risk of putting you on a payment plan? If you would be paying more than you're having garnished, what would be the benefit to you?

You might be able to make a lump sum payment towards your judgments, which you could do by saving up one payment at a time, but if that's impossible while you're being garnished...

You can also try to claim that the garnishment is taking too much money and you aren't able to live on the rest due to your change in marital status.

Chapter 13 bankruptcy allows you to pay towards your debts for a set time period, but they take all of your disposable income as calculated by them, so who knows if that would benefit you or not, cashflow-wise.

I can suggest the NOLO book on Chapter 7 bankruptcy, which includes information about the best course of action for someone in your situation as well as information about Chapter 7 bankruptcy. If your credit is already shot and you need the money now, you really should consider it.

Seriously. The credit card companies would declare bankruptcy in a hot second if they felt like it would benefit them.
posted by the young rope-rider at 10:30 PM on December 7, 2012 [1 favorite]

Also, I know this is a really difficult, confusing, and stressful situation and I think that asking about it and doing research about your options is a great first step.
posted by the young rope-rider at 10:32 PM on December 7, 2012 [1 favorite]

Due to credit fraud beyond my control to challenge in court after wasting a year and a half trying do just that, and owing almost zero besides the fraud, I claimed bankruptcy.

It was an awesome thing to do. No regrets here. But my debt was not mine, and I have documentation to prove such, so it has never been an issue. 2 years later, my credit score is great, except for the bankruptcy on my record, and again, I don't have a lot of debt.

My experience is it is just not that big of a deal. The one with the most debt that is not school loan generated (school loans are exempt from bankruptcy) should pull the trigger. Then, jointly pay down the remaining debt.

Are you likely to never get back together?

Then do NOT persue this course of action.

Do you have an accountant? Get one. Ask them!

posted by jbenben at 10:34 PM on December 7, 2012

If you have garnishments (I missed that) then you have judgements, too. I had a judgement for the credit fraud I could not negotiate and would have cost too much in court to overturn.... Hence, bankruptcy.

I don't think you should feel guilty. This is what bankruptcy is for.
posted by jbenben at 10:41 PM on December 7, 2012

IANAL IANAL IANAL--and that is who you need ( a lawyer) to answer the first part of the question. My understanding is that a legal separation is possible and can be used to identify the parties responsible for satisfying debts before and after the marriage. However, I would also guess this is only "binding" on you, the parties. I doubt if two parties can enter into any form of binding agreement that involves the rights or responsibilities of a third party (creditors) or contradicts established commercial law. Also, a separation agreement is usually entered into to establish a framework for a later divorce--my understanding is that a separation agreement is not binding on a judge granting a divorce. It maybe an excellent way for you and your husband to establish respective responsibilities but I doubt if it is binding on other parties, especially for past obligations/debts. I wish you well in emerging from these problems.
posted by rmhsinc at 5:29 AM on December 8, 2012

From here it sounds like you are under forty, in major credit card and student loan debt, low income, poor health (that presumably prevents you from getting a second and third job) and have a little bit more than $3,000 a year to put towards your debts. (I am unclear if the $300/400 a month towards debts includes or excludes the current garnishments that may prioritise your debts differently than you). That sounds very stressful and would definitely bleed over into your relationship.

If your debts will take more than a year to retire (ie. the total balance owing today is over $3,000 and especially if it is more than twice that) then interest and life circumstances (such as a car repair/week of unpaid sick leave from work/any other unplanned expense) will ensure you ALWAYS have money owing over your head and you will never make any real progress towards paying the debt/getting started in life.

If my assumptions are true then I think you need to realistically look at bankruptcy for what it is: a way for people that the underbelly of the credit card system has trapped, to find a way out of that cycle, and instead be productive members of society. Unfortunate, the student loans can't be erased but with the credit card by out of the way you can set up a realistic repayment plan, build emergency savings (wouldn't you rather put $3,000/year in your savings account?) and maybe put some of the energy/stress/money you are expending on your debt towards education or a better paying career.

TL;DR - time to get off the hamster cycle and make big, real changes.
posted by saucysault at 9:55 AM on December 8, 2012

You can pick up a book called "How to get out of debt, stay out of debt and live prosperously".

I have agreements with three of my creditors. It is best if you talk with them. It gives you a little leeway in what the exact payments end up being.

Cut expenses. Look for cheap alternatives. Try to work overtime or otherwise increase your income.

Request a credit report. You will need it if you want to talk to a lawyer about bankruptcy.
posted by Michele in California at 5:28 PM on December 8, 2012

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