Filing For Bankruptcy After Divorce

: Chris Lee Law Firm

  Filed under: Divorce

bankruptcy and divorceA couple getting divorced faces many challenges. Important decisions must be made about if there are any domestic support obligations, how the property is divided and who will take the burden of certain debts. Divorce tends to put additional financial pressure on both individuals as they are solely responsible for supporting their financial obligations.

When a former spouse experiences financial difficulties after a divorce, seeking debt relief can pose unique challenges. Filing for bankruptcy after a divorce is not as easy as one would think and the outcomes may or may not be beneficial to either individual.

Division of Assets

In a typical divorce, an agreement as to how the assets will be divided between the two individuals. Once the agreement is made, the assets are legally divided and neither party can sue or attempt to regain control over an asset that was delegated to the other person. However, if one spouse seeks bankruptcy protection after a divorce certain assets may be at risk for seizure by creditors, regardless of who was given possession in the divorce agreement.

For example, if the wife was given possession of the car in a divorce settlement and the husband files for bankruptcy, the car may be at risk of being repossessed by the creditor in order to satisfy the owed debt. Bankruptcy can compromise the division of assets agreement and leave the non-filing spouse at risk of having assets seized and liquidated. However, the filing spouse can protect the non-filing spouse by filing for Chapter 13 bankruptcy, which would likely discharge debts that arise from divorce property settlements.

Division of Debts

One of the biggest obstacles in a divorce settlement can be the division of debt obligations. Debts held on joint accounts are often divided equally, making both individuals equally responsible for repaying half of the balance. Debts acquired prior to marriage are often assigned to the individual that accumulated the debt before the marriage.

If one spouse files for bankruptcy after a divorce, they may be able to have their debts discharged. This can be problematic for the non-filing spouse who the creditors may consider liable for the debts. Bankruptcy protects the filing spouse from credit collections, but the non-filing spouse will not be afforded such protection. Similarly, the non-filing spouse may also be at risk of having their credit damaged by the bankruptcy filing, if the debts that are discharged were joint accounts.

 


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