1. My spouse filed bankruptcy in the middle of our divorce. What will that do to my credit?
The short answer is that it depends. For debts that ONLY your ex owed, there should be nothing reported on your credit. For debts that only you owe, those debts are not included in your ex-spouse’s bankruptcy and nothing should change on your credit report regarding them. For debts that you BOTH owe, your spouse’s obligation to the creditor to pay those debts is discharged. Your obligation remains. If you remain current on the debts, the biggest impact may be that the creditor enters a trade line that says “co-debtor filed bankruptcy.” Such a trade line should not impact your score, but if it does, any impact will be negligible. So, in short, it shouldn’t really impact your credit score if your ex-spouse files and you do not.
2. The Court told my spouse he had to pay my debt as part of our divorce. He’s filing bankruptcy. Now what?
For any debt that your name is on, that creditor can report the payment history on your credit. As far as the creditor is concerned, it’s your debt. However, if the Court ordered your ex-spouse to pay the debt as part of your divorce proceedings, the bankruptcy does not absolve the obligation created by that order. Your ex is still obligated to pay and failing to pay is contempt of the Court Order. However, for anything to be done, you will need to bring your ex back to Court. The unfortunate thing is that the Court cannot save your credit. One of the reasons that you want to hire an experienced attorney to help you through your divorce is so you can best protect yourself and so you can set yourself up so you have to rely as little as possible on your ex to do what he or she is obligated to do.
3. Can my ex-spouse avoid paying child support by filing bankruptcy?
No. Child support obligations are non-dischargeable (unforgivable) in a bankruptcy court.
4. My ex-spouse listed the marital debt on his/her bankruptcy. Now what?
Listing a creditor on the bankruptcy schedules does not make that creditor’s claim dischargeable. When filing a bankruptcy, the person filing (the debtor) is required to list all debts on the schedules, even debts that are acknowledged to be non-dischargeable (forgivable)
Listing a debt to a spouse or former spouse shows neither an intent nor the power to discharge the debt. The dischargeability of the debt depends on the nature of the debt (support, property division, lien for equalizing payment, etc.)
If your ex is filing bankruptcy, you are responsible for finding out what is going on and taking steps to protect your interests, if necessary. While the law does provide some protections, you need to make sure you are entitled to those protections; don’t just assume.
5. My spouse was ordered to pay a joint creditor in our equitable distribution but now he/she has filed bankruptcy. What if he/she does not pay the creditor after the bankruptcy?
When the court orders your spouse to pay a debt that is joint, the court is creating an additional obligation for your spouse: your spouse had a contractual obligation to pay the creditor and now has an obligation to pay the creditor on your behalf. If your spouse files a bankruptcy, the contract between the creditor and your spouse is broken – the creditor can no longer collect from your spouse. However, bankruptcy does not alleviate your spouse from the court order. If your spouse stops paying, he/she may be in contempt of the court order.
While you may be able to force your spouse to pay the debt through the Courts, no matter what the court orders between you and your spouse, a creditor will still be able to collect a joint debt from you. Especially if your spouse has filed bankruptcy and the debt has been discharged – they will go after you because your spouse is no longer an option.
6. My spouse was ordered to pay some of our tax debt; he filed a Chapter 13 bankruptcy and the debt is being paid in Chapter 13. Now what?
That can be very complicated. Whatever tax debts are owed to the IRS from a joint tax return are generally considered to be owed by both parties. Divorcing does not change that and an order of the court that one person pays the debt does not change how the IRS can or will collect.
When a person files a Chapter 13 bankruptcy, all of his/her tax debt must be paid, no matter what. However, it is paid as part of the distribution of funds by the Trustee. What that means is that it can take a while. So if your ex-husband was ordered to pay taxes by the Court as part of his equitable distribution, those taxes will probably be paid through the bankruptcy. However, it may take 5 years for them to be paid. In the meantime, the IRS can continue trying to collect directly from you. It would be best to contact an accountant and adjust your withholdings each year so you do not receive tax refunds.
7. If my ex-spouse files bankruptcy, can I lose my stuff?
As long as your property had been separated from your spouse, probably not. If an Equitable Distribution has been completed by the Court, the things the Court determined were yours are not at risk. However, if you did not have an Equitable Distribution Order and your ex’s name is still on your property, i.e., a house or a car, your ex still has an interest in that property and that interest becomes part of the bankruptcy.
This issue mostly comes up when a property distribution requires that one party refinances a house to get it out of the other party’s name. Sometimes, that takes a long time. Particularly during the height of the recession. If you own a house and you are supposed to refinance it so your spouse’s name can come off the mortgage and the deed, that property is still owned in part by your ex-spouse. A bankruptcy court can look at the equity and if the ex-spouse’s equity (usually ½) is sufficient to justify selling the home to repay his or her debts, the court will do it. You would get notice of the possibility in the mail and you should contact an attorney immediately to protect your interests.
8. My ex was supposed to refinance the house, but he didn’t. Now he isn’t paying and it’s killed my credit. What can I do?
Hindsight is 20/20 and situations like this are why it is so important to have a well-written agreement or order regarding the disposition of property. However, if there were no time limits or ultimatums set for the real estate, this type of thing can happen. The unfortunate thing is that the bank will not let you off the loan regardless of what your divorce papers say.
There are two ways to get out of the situation:
- Go to court and request that the property be bifurcated and a sale forced of your interest in the home. This is an extreme long shot because no one really wants to buy 1/2 a house and you would still be on the hook for the full mortgage.
- File a bankruptcy. Filing bankruptcy can remove your name from the debt (although you would still own the home and the debt would still be secured by the property). This can be a bit complicated to understand. If you’re in this situation, you should speak to an attorney who is familiar with bankruptcy law for guidance.
9. I’m in the middle of a court battle and my ex filed bankruptcy! What now?
Filing bankruptcy provides a number of protections against collection and litigation. In fact, if there is a case for equitable distribution, the bankruptcy stops it in its tracks. However, the filing of a bankruptcy does NOT stop cases for alimony or child support. It is typically best practice to ask the bankruptcy court for relief from the stay regardless, but it is not truly necessary. By the same principals, collection action for alimony and child support can continue even if a bankruptcy is filed.
10. I recently got divorced and now my income is lower, my expenses are higher, and I’m really struggling. Should I consider bankruptcy?
Maybe. It is certainly worth speaking to an attorney about because bankruptcy may be just the relief you need so you can have the fresh start needed to help you move forward after your divorce. Remember a few things: bankruptcy will not give you relief from paying child support or alimony; bankruptcy requires that you list all of your assets and debts – you need to ensure this is consistent with what you told the family law court, and it is likely that your ex will learn that you have filed. Speaking to an attorney who practices bankruptcy law can help you determine the right course of action for you.