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What Happens If Your Ex-Spouse Files for Bankruptcy?

Posted on in Divorce Finances

What Happens If Your Ex-Spouse Files for Bankruptcy?Completing a divorce will drain your personal finances to a certain extent. You are giving up a portion of your marital assets and losing your spouse’s income as a means of helping pay expenses. Some people’s debt problems following a divorce become bad enough that they need to file for bankruptcy. You can work with your divorce attorney to try to avoid this outcome by ensuring that you receive a favorable division of properties and debts, as well as spousal maintenance if your spouse has a greater income than you. However, your former spouse may have their own financial struggles that lead to them filing for bankruptcy. Even though you are no longer married, it is possible that their bankruptcy could leave you liable for some of their debts.

How Does Bankruptcy Work?

To understand how your former spouse’s bankruptcy could affect you, you first need to know what the bankruptcy process entails. A person files for bankruptcy when they believe they are incapable of repaying their debts and are in danger of losing assets to their creditors. An individual will use either Chapter 7 or Chapter 13 bankruptcy, depending on which one they qualify for. At the end of the process, the filer is allowed to discharge most debts that were not repaid during the case. Discharge means that the filer no longer has any obligation to repay the debt.

How Might You Be Liable After the Bankruptcy?

While the creditor cannot collect from your former spouse after a bankruptcy discharge, they can still collect from you if you are also liable for the debt. Dividing debt in your divorce agreement does not remove your legal liability for the debts that your spouse agreed to pay. To eliminate your liability, you need to modify the debt agreement to remove you from it. The creditor may not want to modify the agreement if it thinks your former spouse does not have enough income to repay the debt on their own. The creditor may understand that one of you is taking sole responsibility for making debt payments, but that will not stop the creditor from turning to you if your former spouse has stopped paying the debt. In the case of bankruptcy, you may be the only person that the creditor can attempt to collect the debt from.

Contact a Kane County Divorce Lawyer

Marital debts can tie spouses together after they have decided to divorce. When creating your divorce agreement, you need the guidance of a St. Charles, Illinois, divorce attorney at Goostree Law Group to help protect your future financial stability. Schedule a free consultation by calling 630-584-4800.

Source:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics

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