Bankruptcy does not impair a District Court divorce decree.
Video Transcribed: Edward Kelley here, 188 Debt-line answering your bankruptcy questions. We’re into this series on bankruptcy and divorce. Last time we talked about what a great tool a bankruptcy can be in a divorce for the next few episodes. Having said how good it can be, I’m going to talk about some specific pitfalls. So here’s an important one. You need to bear in mind that if you are divorcing and you yourself are doing a solo bankruptcy, meaning you’re not using it as a planning tool, you’re using it to just take care of your own debt.
This will happen a lot when a divorce is very bitter and acrimonious. One person doesn’t want it. One person’s super-mad can’t work together. So one decides, “Hey, I’m going to get rid of all this debt,” while the other one out of unreasoning-ability or defiance says, “Well, I’m not helping you with anything or doing anything.” So what happens in that scenario?
Well, here’s the rule to remember. A bankruptcy does not impair a District Court divorce decree. So what a bankruptcy does his discharge the ability of any creditor to collect. Now a creditor can be an ex-spouse, but this does not affect a divorce decree awarding a debt to a specific party. So how does this play out in practice? Okay, so you are in the middle of a divorce or just divorced.
Let’s say you’ve got five credit cards, I think that’s example I used in the last one, five credit cards and a repossessed car. So, let’s say you’re the man and you were awarded all of the credit card debt. Meaning the judge says, you sir, will have to pay all of this credit card debt. She doesn’t have to pay any of it. Common and divorce degree, assignment of debt. And she is assigned the debt on the repossess vehicle, vice versa.
Excuse me. Forgot to put that on silent. Let’s say that. Yeah, she’s awarded all the debt with the repossessed car. So how does this play out? You file a bankruptcy. So your discharge, you list all the credit cards, you list the car. None of those credit card companies and the auto finance company, none of them can ever come after you directly. However, your spouse can still come after you for the credit card debt. Now, if you are both liable on that credit card debt, as soon as you file that bankruptcy, they’re going to continue to try to collect debt from her.
She wasn’t in the bankruptcy, so that obligation was not discharged as to her, so she gets hit. Let’s say she can’t pay that. They sue her and get a judgment. Well, she has got a slam dunk action against you for what’s called contribution, meaning you were supposed to pay that debt. You didn’t. Now they’ve come after her, now she can sue you. She’s got a pretty clear case and this does come up a lot.
She’s also potentially got an action for contempt within the divorce, which can carry up to six months in jail. So the long and short, don’t think you can just put down your spouse as a creditor, which by the way, you should always do put down all of your exes just in case any debts come up that aren’t dealt with in a divorce decree or just to, in the interests of exhausting all possibilities for avoiding liability. But know that if you are awarded something in the divorce decree and you bankrupt it and she doesn’t, you’re going to have a problem unless she’s real nice or just decides to take care of it. So again, the best solution, if you’re facing something like this, put aside your differences, both do the bankruptcy, that way it’s wiped up for both of you. But that’s a pitfall to definitely watch out for.
And we’ll talk about a couple more pitfalls in the next couple additions of a 118 Debt-line. I’m here to answer your bankruptcy questions and as always, you can reach me at that number or email me at email@example.com.