Very often, divorce settlements are a critical reason why people fail to repay their debts and file for bankruptcy. Why? A divorce is messy enough without bringing finances into the equation. Filing a joint bankruptcy prior to the divorce, can is some circumstances, provide a solution.
Can a spouse become liable for the other spouse’s debts?
You do not acquire responsibility for debt by way of marriage in most circumstances. In situations where both spouses are legally responsible on a debt, if one spouse files bankruptcy, the other spouse will still be liable for the debt. It is the joint marital debt that usually causes the most problems in a divorce.
A case in point is a joint home mortgages. When the marital residence is awarded to one spouse as part of a divorce settlement, the other spouse remains liable on the mortgage loan, even after the deed to the house is signed over. The lender is under no obligation to remove the legal liability for either person to pay, and a divorce court cannot do away with this liability as part of a divorce decree. Therefore, if the spouse that was awarded the real estate cannot or will not pay the debt, the other spouse’s credit is affected. If the spouse awarded the real estate files for a bankruptcy, the other spouse may be saddled with the debt, alone.
Which should come first, divorce or bankruptcy?
If a divorce looms, it may make sense to file for bankruptcy before the divorce takes place, as this tends to simplify the divorce processes. A joint filing can discharge the liability that both spouses have on joint debts, thereby dealing with the potential problems of one spouse remaining liable on a joint debt. The rub here is that a divorcing couple must agree with each other regarding the decisions that they must make as part of the bankruptcy process. They must be able to cooperate with each other. If they cannot agree on decisions that must be made as part of the bankruptcy process, complications can ensue.
There are situations where a joint filing prior to a divorce is not a good idea. If a couple is having a difficult time cooperating with each other or if they will have difficulty agreeing with each other on issues that arise during the bankruptcy process, then a joint filing is not indicated.
What happens if I am already divorced and liable for joint marital debts?
Dealing with joint marital debt after a divorce is tricky. There are bankruptcy laws that may adversely affect a divorced spouse’s ability to totally discharge liability of these debts. An experienced bankruptcy attorney can help you get the most relief possible under the law.
Sawin & Shea LLC – Indianapolis Bankruptcy Attorneys
If you are contemplating divorce and financial worries loom, the Indiana bankruptcy attorneys at Sawin & Shea LLC have years of experience representing good people in bad financial situations caused by divorce and financial stress. Please do not hesitate to call us today at 317-759-1483 for a free consultation.