How A Bankruptcy Filing May Affect Post-divorce Debts

January 10, 2013

How a bankruptcy filing may affect post-divorce debts

Financial problems are a leading cause of divorce and Colorado residents understand that divorces can be costly: emotionally and financially. Personal bankruptcy filings continue to increase in the United States, particularly post-divorce.

The financial aspects of a divorce are often stressful, and filing for bankruptcy is a common option to help get finances under control. A typical issue that arises relates to post-divorce debts and how obligations to pay mutual debts may change when a former spouse files for bankruptcy.

Determining whether a debt is dischargeable in bankruptcy

Certain divorce related debts cannot be discharged in bankruptcy. The following debts may not be discharged in bankruptcy:
-Child support
-Alimony
-Student loans
-Certain types of property settlements
-Criminal restitution
-Debts from fraud or theft

Additionally, attorney fees owed to an opposing party in a divorce or custody case are often not dischargeable. It is presumed that property settlements are not dischargeable. However, if the debtor shows payments cannot be made while caring for a family or other dependents, the debt may be dischargeable. The dischargability of such debt, however, can be different in a Chapter 13 case than in a Chapter 7 bankruptcy filing. Motor vehicle fines and income tax payments are also normally not dischargeable.

When payments may cease for debts discharged in bankruptcy

For debts that are discharged in bankruptcy, such as credit card debt, payments to a former spouse for that debt may cease if certain requirements are met. Refer back to the marital settlement agreement signed at the conclusion of the divorce process. The settlement agreement is a record of the division of marital assets and debts.

It is common in settlement agreements to accept responsibility to pay a debt that is now only in a former spouse's name. The former spouse may have agreed to sign over certain titles or property in exchange for the responsibility.

However, if a former spouse files for bankruptcy, the liability to pay that debt is wiped out. This means if the account is only in the former spouse's name, and he or she is no longer required to pay the debt, neither is anyone else. However, if the account is still in both spouses' names, be aware that the creditor may look to the former spouse who did not complete bankruptcy for payment of the debt.

Steps to take to clarify this information

There are a few items to confirm before payments on an account can cease:
-Verify the names on the account
-Verify the authorized users on the account
-Confirm this is a debt that is validly discharged in bankruptcy

Call the creditor directly to validate this information. Remember individuals set up as authorized users on the account are not legally required to make payments on the account. An individual questioning the responsibility for post-divorce debt that is wiped out in bankruptcy can benefit from an experienced family law attorney. The attorney can provide valuable guidance as well as protect the individual's rights and credit.

Article provided by Harkess & Salter, LLC
Visit us at http://www.harkess-salterfamilylaw.com