Debt, Divorce and Bankruptcy - What Are You Responsible For?

A divorce involves some very complicated issues:

•    Who deals with the children full-time?
•    Who gets the house?
•    Who pays for the house?
•    How are the debts going to be divided?

When it comes to divorces, it gets messy when either party has a significant financial loss at stake. One big myth about divorces and debt is that you can pass the debt to the other person.  While you can divorce the spouse, you can’t divorce the debt that incurred during the marriage.

Both parties are responsible for the debts that they incurred during the marriage. While a judge may divide the debts up between the two parties, the creditor doesn’t have to follow it. If the debt includes both parties’ names, the credit can go after both even after the finalization of the divorce.  If one parties files for bankruptcy protection after the divorce, the creditor is going after the person who didn’t file for the bankruptcy protection.

Why Are You Responsible For The Debt?

The couples’ financial situation is what creditors took into consideration when they loaned them the debt. It’s possible that you incurred debt without your knowledge and consent, but creditors don’t know this and will still go after you for the debt.

The Correlation Between Divorce and Bankruptcy

When you get divorced, you may suffer a serious financial problem. This may force you to start the bankruptcy process. If one party looks to file for bankruptcy, it may be a wise idea for both parties to file for bankruptcy protection before the divorce is finalized. This ensures level ground for both parties and property to be equally divided.

A spouse has the option to release a property division responsibility instead of financial support, so long as the parties agree. However, if a spouse doesn’t agree, the debt stays intact. The bankruptcy court must sign off on any agreements.

How Does A Bankruptcy Affect A Divorce?

When you choose to file for bankruptcy during a divorce, the assets and liabilities are affected until the resolution of the bankruptcy. While both court proceedings can be filed at the same time, the bankruptcy proceeding is considered most important.

If one partner is financially more stable than the other partner and worries that there could be financial consequences – such as being responsible for the debt if their ex chooses to file for bankruptcy – this needs to be brought up during the divorce proceedings. It’s important you know what your financial obligations are in regards to outstanding debt repayment. It’s also a good idea to know what the bankruptcy laws are to protect yourself before, during and after the divorce proceeding is over.

If the parties are not on good terms, a family law lawyer can help you through the process. If they do get along, filing for bankruptcy protection before the divorce can help both parties wipe their joints debts out and boost their exemptions.

A good attorney can assist you in moving from a bankruptcy proceeding to a divorce proceeding; it doesn’t matter if you’re talking to your ex or not. It’s vitally important you know what your responsibilities and rights are so that you can smoothly move forward with life.