Divorce and Chapter 7 Bankruptcy

The interplay between divorce and bankruptcy is confusing. There are also important decisions to make when deciding whether to file bankruptcy and when to end a marriage. Divorcing is generally easier on all parties when the divorcing couple can agree on as many issues as possible. This is especially true for division of debt in divorce.

Example

For our example we will look at a married couple with debt in both names (also known as co-signed debt) where only one spouse files chapter 7 bankruptcy. Spouse A chooses not to file bankruptcy and Spouse B chooses to file bankruptcy. Spouse A is solely responsible for paying the co-signed debt. The creditor may collect against Spouse A who did not file bankruptcy. In the divorce judgment, Spouse A could request that Spouse B pay the entire debt or a portion of the debt. Even if the family law court orders Spouse B to pay some or all of the debt, the Creditor may only collect against Spouse A. Spouse A will need to enforce the divorce judgment and have the family court order Spouse B to pay their portion of the debt according to the court order. However, the creditor will still only be able to pursue Spouse A for the debt which can be stressful and damaging to credit.

Suggestion

If the divorcing couple is cooperative, they should consider filing a joint bankruptcy prior to dissolving a marriage. This is wise for a number of different reasons. It reduces one of the main issues in a divorce which is division of debt. It helps you both start over fresh. Therefore, it is extremely important for a cooperative divorcing couple to properly plan for divorce. Our office can provide you with this expertise.

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