Bankruptcy and Divorce: Which Comes First?

If you have filed for divorce and your spouse suddenly files for bankruptcy, you may be wondering how this is going to affect you, if at all. In order to understand exactly what is going to happen in the situation, you must first have a handle on some basic family law terms.

A Final Judgment of Divorce, or Divorce Decree, is issued by a family law judge in order to completely dissolve the marriage.  The Divorce Decree becomes finalized when it is signed by both you and your spouse and in some cases, your respective attorneys.

The Property Settlement Agreement, sometimes known as the PSA, is a document that accompanies the Divorce Decree.  The PSA sets out the terms of your divorce and all of your assets and liabilities. This is the document wherein you and your spouse determine which portion of the marital debt will be paid by each party.  You and your spouse will come to an agreement that has you responsible for certain debts and your spouse responsible for another portion of the marital debts.

With all of that being said, your creditors have absolutely no interest in whether or not you and your spouse have decided to get divorced, regardless of the reasons.  The Property Settlement Agreement sets out a payment agreement between you and the other party for all debts acquired during the marriage, however, this is simply an agreement between you and your spouse, and in no way does this lift your legal liability for these debts.

Unfortunately, if you agreed to get (and added your name to) that credit card that your spouse maxed out, creditors do not care who did all of the shopping.  The only thing they are concerned with is that they get paid, and they are not concerned with who pays them – regardless of any PSA that you and your spouse may have agreed to.

Perhaps your spouse is filing for bankruptcy now because he or she has learned that once a divorce is finalized, any marital debt he or she has agreed to pay cannot be discharged in a bankruptcy. By filing before the Divorce Decree, or Final Judgment of Divorce is signed, your spouse may be attempting to eliminate as much debt as possible.

What this means for you is that you could potentially end up with some of the debt that your husband or wife may no longer be liable for thanks to the bankruptcy filing. Creditors may come after you, expecting you to pay for your spouse’s portion of the debt that has been “magically” lifted from his/her responsibilities through bankruptcy.

You may also be forced into bankruptcy yourself if this happens, so it is important to be fully aware of your spouse’s actions and intentions regarding the agreed-upon marital debts, so that you don’t end up squeezed into a corner that you can’t get out of.  There are solutions for you if you find yourself divorced with creditors breathing down your neck for debts that your spouse agreed to be responsible for.  In order to keep yourself above water, you need to retain the services of a high-quality bankruptcy attorney immediately.

Photo credit: Brian Ambrozy

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4 Responses to Bankruptcy and Divorce: Which Comes First?

  1. Pingback: Child Support and Bankruptcy: What You Need to Know | Veitengruber Law

  2. Pingback: How Can I Remain Financially Stable After a Divorce? | Veitengruber Law

  3. Pingback: Is Equitable Distribution Dischargeable in Bankruptcy? | Veitengruber Law

  4. Pingback: Divorce Attorney Fees: Can They be Discharged in Bankruptcy? | Veitengruber Law

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