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Consolidate or Keep Credit Card Debt After a Divorce?
A common question I get from consumers is how they should handle credit card debt during a divorce. Years ago, homeowners that split up would often take out a second mortgage to consolidate debt and then this would be considered a liability for one of the people in the divorce decree. Today most homeowners do not have enough home equity and many find themselves with an underwater mortgage. Most 2nd mortgage lenders will require 80% loan to value so that option is unavailable for most homeowners seeking a divorce. Cash out refinancing is available with FHA up to 85% loan to value, but a FHA loan would introduce monthly mortgage insurance and another liability that neither party would likely be interested in. In the last few years, bankruptcy has been a popular alternative because with an underwater mortgage and little or no savings there is not much else this once happy couple could do. In most cases, the divorcees will be choosing between a chapter 7 or 13 bankruptcy.
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