Bankruptcy After Divorce: Can Property Settlements be Discharged?

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Couples who are going through a separation or divorce learn very quickly how expensive it is to split up a marriage. Firstly, the added costs of simply living in two different residences add up fast. In addition to separate living costs comes child support, alimony, equitable distribution, potential attorney fees (times 2), loss of part of your pension, and more.

In divorces where one spouse remains living in the marital home, they may be saddled with an order to pay their ex-spouse up to half of the equity in the home (if there is any). If this order comes as a surprise, paying it may be nigh on impossible, especially if it’s a substantial amount of money.

Some divorcing homeowners may wonder if they can discharge the home equity money they owe to their ex-spouse in a chapter 7 bankruptcy case. For example, if the party remaining in the home is ordered to pay $30,000 for equity in the home, would a chapter 7 bankruptcy erase that debt?

The answer to that question is no. Property settlements cannot be discharged in a chapter 7 bankruptcy, although any and all debts owed relating to the marriage (except for child support and alimony) must be listed in any bankruptcy filing. Any monies that you were ordered to pay to your ex for their portion of the equity in the home are not dischargeable in a NJ chapter 7 case. Filing for chapter 7 bankruptcy can help eliminate a number of other debts owed, excluding any debts owed as per the Property Settlement Agreement/Divorce Decree.

With that being said, there is another option for divorcing homeowners who are struggling financially and simply do not have the means to pay their ex-spouse’s  portion of the equity in the home.

In fact, filing for chapter 13 if you are struggling to stay financially afloat after a divorce can be a solution to a number of your money woes. As mentioned, shifting to a one-income household can be a challenging adjustment, especially if you make less money than your spouse does.

If you have fallen behind on any utility bills, property taxes, HOA fees or if you have rapidly rising credit card debt in NJ, chapter 13 will help you reorganize all of your debts, giving you as much as 5 years to get caught up. This includes mortgage debt – and filing for chapter 13 will protect your home from foreclosure.

Along with helping you reorganize your debts, the sum you’ve been ordered to pay your ex-spouse can be reduced or discharged entirely. The possibility of this is dependent upon your income and the combined total of all of your debts. The amount you’ll be required to pay toward divorce debts that are not support-related will be based on how much you can afford to pay. Beyond what you can afford within the given time frame of your chapter 13 repayment period, the rest of your non-support divorce debts will often be discharged, and you will no longer owe the remaining amount.

↓↓CRUCIAL INFORMATION BELOW↓↓

The experience of your bankruptcy attorney is of the utmost importance in a matter involving NJ bankruptcy after divorce. There are so many variables that will affect all aspects of your chapter 13 bankruptcy case. An inexperienced attorney can make expensive and disastrous mistakes. Look for a NJ bankruptcy lawyer who focuses their practice on helping people improve their financial future through debt relief and credit counseling.

Image credit: Fried Dough (flickr user)

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