Debt and Divorce
Debt and Divorce
Responsibility for Payment of Debts:
You and your spouse have debts for which you are
both responsible, such as a bank or family loans, credit cards, medical bills or
utility bills. Your divorce does not make either spouse free from the financial
responsibility incurred while you were married. If a creditor cannot collect the
debt from one of the spouses, the creditor can sue the other spouse for the
Cars may be repossessed and homes lost through
bank foreclosure unless the spouses make a responsible and timely plan for how
the debts will be paid off. Unpaid debts could result in both ex-spouses having
a bad credit report and the loss of future credit.
Spouses in a divorce may protect themselves by
refinancing loans so that only one spouse will be liable on the debt. If you
have debts which cannot be refinanced, carefully worded agreements which address
in detail which spouse is responsible for payment of the loan, including
interest on the loan, the amounts to be repaid and over what periods of time,
can provide protection for both spouses. Consider consulting an attorney if you
are unsure of how to protect your financial interest.
Protecting Your Home:
As part of a Temporary Order, the Judge have
ordered one spouse to make the mortgage payments. If the spouse who was ordered
to pay the mortgage fails to pay, the mortgage holder may start foreclosure
proceedings against you even if you were not living in the home and were not
responsible to pay under the Temporary Order. It is strongly recommended that
you consult with a lawyer quickly if foreclosure proceedings are started against
you. A knowledgeable and timely response may protect you from loss.
How a Bankruptcy Petition Affects the Divorce Order:
A person who is unable to pay his or her debts
may under certain circumstances be excused from paying these debts by filing a
petition for bankruptcy. Such petition is filed in the United States Bankruptcy
Court. An order of the Bankruptcy Court may affect your property rights received
in a divorce. If, for example, the court, in the divorce decree, ordered your
spouse to pay a loan which both spouses had taken out, and your spouse is
excused from paying this loan in a bankruptcy, the creditor has the option of
trying to collect payments from you for the loan, regardless of what your
divorce order says.
Filing for bankruptcy does not change the child
support which has already been ordered by the court. Filing for bankruptcy also
does not generally change spousal maintenance obligations.
Once a bankruptcy petition is filed with the
Bankruptcy Court, the court handling the divorce cannot change or modify child
support or maintenance payments unless the Bankruptcy Court specifically permits
such modification proceedings.
This is because the Washington State courts
cannot make any orders, except enforcement of support orders, while the
bankruptcy is being handled in the Federal Bankruptcy Court.
Filing for bankruptcy can affect a divorce
property settlement. Typically, if one spouse owes another spouse some property
as part of a divorce order, this property award can be "discharged," or
canceled, in bankruptcy if the Bankruptcy Court looks at the property award as a
debt. You should consult a lawyer if you think there is a chance that your
spouse will file for bankruptcy while there are outstanding property and support
obligations in a divorce.
[Prepared and distributed by the Family Court of
Vermont (April 1994)]