Divorce Decree v. Bankruptcy: Which Determines Final Debt Liability? | Westgate Law

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Divorce Decree v. Bankruptcy: Which Determines Final Debt Liability?

filing bankruptcy, file for bankruptcy, westgate law, southern california bankruptcy attorney, filing for bankruptcy, divorce decree v bankruptcy, final debt liabilityMeet Dawn and Jared. Dawn and Jared were high school sweethearts. They got married during college. Dawn eventually became a lawyer and Jared eventually became a doctor. By the time they got divorced, they hardly saw each other because they were both so busy and had such different priorities and schedules. They didn’t hate each other, but they hardly knew each other at all anymore. The divorce wasn’t contentious and everything went smoothly – including the division of marital assets. The division of assets included their accumulated debt – which was substantial. The most substantial of which was a lump sum owed by both Dawn and Jared to a mentor from their hometown who wanted them to focus on their studies and provided them with financial assistance in the form of a loan to get them through their advanced degrees. During the divorce negotiations, this debt was assigned to Dawn, she agreed, and the debt was listed as her responsibility to repay according to the divorce decree. 18 months after the divorce is becomes apparent to Jared that Dawn is filing for bankruptcy and including the debt they both owed to their benefactor back in their hometown. This upsets Jared as she was assigned the debt in the divorce decree, but is not eliminating the debt through bankruptcy. He hopes this isn’t legal and that something will prevent her from doing so since the Divorce Decree is an official court document. If not, he is prepared to fight her in bankruptcy court in order to insist she pay her debt as agreed.

When an experienced bankruptcy attorney gets ahold of this type of situation, it boils down to one question; do you need to protect the divorce agreement provisions when your ex files bankruptcy? The first thing Jared should do in this situation is to consult his divorce attorney. If you didn’t use an attorney, you may want to pay for a consultation on the matter.

According to bankruptcy law, divorce agreements (i.e. Marital Settlement Agreements or Divorce Decrees) survive a bankruptcy discharge. An individual cannot eliminate debt that they agreed to pay in a divorce agreement. For instance, a husband and wife have a joint credit card. During their divorce, and included in the divorce settlement, was the agreement that one spouse would be personally responsible for all or a certain portion of the credit card debt. The spouse then decides to file for bankruptcy to eliminate their responsibility. This liability will survive the bankruptcy filing (luckily for the non-filing spouse).

There is one very important exception: if both parties involved in the divorce file bankruptcy after the divorce, the debt is discharged for both parties.

In the above situation, if Jared does not file for bankruptcy, he can enforce the divorce agreement even after his ex completes her bankruptcy. Nothing needs to be done or filed with the bankruptcy court in order to do so. The divorce agreement simply outweighs the bankruptcy discharge.

If you still have questions about filing bankruptcy or how your ex’s bankruptcy will affect your finances and your credit, please get in touch with the experienced southern California bankruptcy attorneys at Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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