Filing for bankruptcy and divorce - what you should know.
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By Bromwich+Smith Staff | 461 words | Reading Time: 2 minutes and 18 seconds | Date: 2022/06/17
Divorce is never a simple decision nor is deciding to file for bankruptcy. Divorce, break ups, and separations can be one of life’s more painful and traumatic events. When a couple divorces there is also the consideration of how to manage joint debt and deal with your financial situation that was created during the marriage.
Not every marriage has the same financial situation. So the first thing you need to decide on is your particular situation and what would support you in addressing it.
Filing for Bankruptcy During Divorce
When it comes to your assets, if you decide to file for bankruptcy before your divorce is final, they will be transferred to your bankruptcy estate and will no longer be available for distribution in your divorce.
Alternatively, if you finalize your divorce before bankruptcy and your assets are transferred to an ex-spouse as part of a Family Court Order or legal separation agreement then these assets are no longer available for your creditors in bankruptcy.
What Happens To Joint Debts After Bankruptcy?
Joint debt refers to debts that are shared by both spouses. If one person cannot repay the debt, the other spouse is responsible for the entire debt.
Joint debt can include:
- a joint line of credit or loan, such as a car loan or mortgage
- joint credit cards
- large personal loans to a family member, i.e. a down payment on a home
A joint debt cannot be eliminated by a divorce or a separation agreement. That means that, no matter what your divorce or separation agreement says, debts that were owed by both you and your spouse before the divorce, will still be considered joint debts after the divorce. If one spouse files for bankruptcy, the creditors can, and will, pursue the ex-spouse for payment of a joint debt regardless of what you agreed to in the divorce.
To eliminate a joint debt, your lender must agree to remove one spouse from any debt that was co-signed or guaranteed. This includes joint credit cards.
In the event of filing for a joint bankruptcy before a divorce it is in both of your best interest to do so in order to wipe out your combined debt.
Divorce is not easy on anyone but if you can clear your debts before you take the step to divorce it will help in easing your divorce challenges.
Regardless, we are here to help and let you know you are not alone. Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!