Help! My ex is skipping car payments

By Liz Pulliam Weston

Dear Liz: I'm getting a divorce, and my soon-to-be-ex-wife has stopped making payments on a car loan that's in my name. I can't afford to make the payments, and now the lender is calling. If the car gets repossessed, will that affect my almost perfect credit, and will I be able to get that off my credit history after the court settles our divorce?

Answer: Sorry to be the bearer of bad news, but your "almost perfect credit" became history as soon as she missed the first payment. If your name is on the loan, you're responsible for making sure the payments get made. If you fail to do so, that fact will be reflected on your credit reports and will result in a significant drop in your credit scores. A repossession will just make matters worse.

Furthermore, it doesn't matter what your ultimate divorce decree says about who's responsible for paying what bill. Creditors typically don't have to pay attention to outside agreements made after you're approved for a loan. So if you want to protect what's left of your credit, you'd better figure out some way to catch up on the back payments and to keep current going forward.

You should make sure all other joint credit obligations are covered. Well before the divorce is final, you'd be smart to close any joint credit card accounts and refinance any mortgages that list you both as responsible for the debt.

Preparing to buy a house

Dear Liz: I'd like to buy my first house soon, but real estate is expensive where I live, and condominiums seem more affordable. What is your take on owning a condo versus a house?

Because I will have to do 100% financing, I will have to pay $250 a month in private mortgage insurance, resulting in a payment of about $2,450 a month for a 30-year, fixed-rate mortgage, which seems like a lot. I was advised that I could decrease my tax withholding, because the mortgage interest will be deductible, and that would make the payment seem less huge.

Answer: Wait a bit and build a down payment.

Swinging 100% financing is tough in these credit-crunch days and probably was never a great idea. You're "underwater" on your home from the start, owing more than you'd net from selling it (considering that commissions and other selling costs would eat up 6% or so of its value).

Scraping together even a small down payment also gives you some of the discipline and saving skills you're going to need as a homeowner. If you can't manage that, you may not be able to manage the unexpected expenses that are an inevitable part of homeownership.

You're smart to opt for a fixed-rate mortgage, but you didn't mention your income. Beware if your mortgage, property taxes and condo insurance eat up more than 30% or so of your gross income. To ensure you have enough left over for retirement savings, vacations and everything else, a 25% limit is even better.

As for condos versus single-family homes: In general, single-family homes hold their value better in bad markets and appreciate more quickly in good ones. That makes sense given that most people would rather live in their own house than share walls, ceilings and floors with neighbors. But that doesn't mean a nice unit in a well-maintained complex is a bad investment. Find a place where you want to live, and chances are others will want to live there as well.

Worried about parents' debts

Dear Liz: Can I be held responsible for my parents' debts?

Answer: No, unless you co-signed a loan with them or otherwise agreed to take responsibility for paying their bills.

That doesn't mean your parents' debts won't affect you. If they die owing money, the creditors' share will be taken out of their estate before the remainder is distributed to you or other heirs. If there isn't enough to pay the creditors, though, they're out of luck; you aren't responsible for paying them back.

Unwanted card offers

Dear Liz: How do I stop credit card companies from sending me card offers?

Answer: You probably can't stop the deluge entirely, but you can cut down on the offers you get by signing up with the credit bureaus' opt-out service at 1-888-5-OPT OUT (1-888-567-8688) or at OptOutPrescreen.com.

Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Feb. 18, 2008