If you are divorced and your ex-spouse has filed a Chapter 7, Chapter 11, or Chapter 13 bankruptcy case, you are probably wondering how it is going to impact you. Many people are surprised to learn that their ex-spouse's filing does not eliminate ALL obligations to pay a loan. Specifically, your ex-spouse's bankruptcy filing does not eliminate your personal liability. Once your ex-spouse files bankruptcy, unless the co-debtor stay is in effect, the lender will start expecting payments from you on all joint debts. This can be true, even if your divorce agreement provides that your ex-spouse is required to pay the debt.
If the debt at issue is a secured loan, and you do not want to keep the collateral and pay the remaining balance, you may want to consider surrendering the asset to the lender. It is essential that you understand whether the creditor will be paid in full by the surrender, or if you will still be liable to pay any deficiency balance. If you surrender the collateral, it is important to understand it will have a negative impact on your credit score.
If you decide to keep the collateral and repay the loan, you will want to confirm that the lender continues to report your payments to the credit bureaus. It is common for all reporting to stop as soon as a bankruptcy notation is placed on the account. However, it is important that you continue to receive the benefit of improving your credit score by making the payments.
Please keep in mind that every case is different. If you have questions about filing a personal bankruptcy or how debts from your divorce will be handled in your filing, and you would like to schedule a no-cost consultation, please contact our office by completing the form on this website or calling us at (954) 280-5066.