It’s every borrower’s worst nightmare: You check your savings account only to find it’s been sapped by a lender. You had no idea this was coming, and even worse, you’re not sure that it’s legal. What do you do?
This recently happened to one Credit.com commenter, who wrote in with this nightmare scenario that’s been edited for grammar and clarity:
I’ve been separated from my husband for over a year. His name is still on a savings account at my credit union, where he also has a truck loan. I am the only person who has been direct depositing to the savings account for six years. He apparently quit paying his truck payment. They took everything I had in the savings account. Is this legal?
To answer the question, Credit.com reached out to Alex Stern, an attorney with Little Guy Law Firm in Miami Beach, Florida. As he wrote via email, “a creditor cannot come after assets until a judgment has been entered. For a valid judgment to be entered, notice to the debtors (wife, husband or potentially both) would have to have been given (i.e., service of process of a lawsuit).”
He continued (emphasis ours), “If the judgment was obtained properly, and the account shared both people’s names, then the action taken by the bank would appear to be lawful, but these are a lot of ifs, and much more information would be needed to provide an accurate answer.”
Credit.com wondered if this is because some states allow lenders to garnish wages and others do not. But Stern wrote that “some states differ in how marital property is treated when there’s a separation.” While some states treat the separation as the date from which the assets should be divided, others start counting from the date the divorce petition was filed. “Generally speaking,” he concluded, “all states allow for some form of wage of garnishment after that state’s procedures for entry of a judgment have been followed.” But again, more information would be needed to address the reader’s specific problem. If you find yourself in a similar situation, consider speaking with a consumer attorney in your state.
Nessa Feddis, a representative with the American Bankers Association in Washington, D.C., offered a similar response involving bank accounts post-judgment: “Generally by law, banks may use funds from a deposit account to pay a loan borrowers have not repaid as agreed,” she wrote via email. “The exception is credit cards, unless the account is specifically secured by the account.”
The Dangers of Defaulting on Your Loans
Though the commenter implies she was not responsible for her husband’s decision to neglect his loan, there’s also the chance she may have been the co-signer, which would have made her responsible for paying it off. In that case, the onus was on her to keep track of the loan and meet the agreement.
Of course, for some people, paying a loan is easier said than done. Life gets in the way, and other bills take precedence over a loan that’s been around for awhile. While this is understandable on a personal level, from a financial standpoint, ignoring a loan will do nothing to help your credit. In fact, missing several payments will drag down your score considerably, making you a lending risk.
If you’re thinking of getting a loan or have already taken one out, it’s helpful to monitor your credit as you work to pay it off. That way, you’ll know where you stand in case you decide to take out more credit. You can view two of your credit scores, updated each month, for free on Credit.com.