Sometimes people come to bankruptcy attorneys with particularly sticky situations. One of the most common types of “sticky” situation following divorce comes when unpaid debt of one party affects the other party negatively. In fact, in some cases, the ex’s unpaid debt can result in a lawsuit that can cause a lien to be placed on property that was actually assigned to the other party in the divorce through the final divorce decree. When this happens panic can quickly set in.
This is, in fact, a much more common issue than many believe. While listing a debt in a bankruptcy case eliminates the petitioner’s liability to pay on the debt, a lien placed against property prior to the bankruptcy filing has to be handled separately by filing a legal motion while the bankruptcy case is still pending.
Consider this Example: You ex-wife went to the hospital prior to the bankruptcy filing. She did not pay the outstanding bill. The hospital sued her, obtained a judgment, and placed a lien on the house. She then filed for bankruptcy, but failed to file the motion with the court that would remove the lien from the house. She most likely had the right and the ability to do so and the motion probably would have been successful. But she didn’t file the motion for the removal of the lien – either because she didn’t know she needed to or because she didn’t know the lien was in place.
The fact that the “ex-wife” wasn’t actually awarded the house in the final divorce decree is not even taken into consideration. The creditors involved in the case had nothing to do with the divorce and they don’t recognize the division of property. They simply see an unpaid bill and respond in the appropriate, legal manner: suing her and placing a lien on her property. While the family court awarded the house to her ex-husband, the creditors still have this right. This is the only way to avoid a massive influx of “sham” divorces in which couples assign all their property over to the party not being sued for unpaid debt. Practically speaking, this cannot be allowed. It would leave the collection system in an impossible position in regards to collecting on any unpaid debts.
Is there a potential resolution? Of course! In this particular case, the ex-wife simply needs to file a motion with the bankruptcy court to reopen her bankruptcy case and (now that the bankruptcy case is open) file a motion to remove the lien from the property (that was awarded to her ex-husband in the final divorce decree). It is not a complicated process. She has the grounds to have the bankruptcy case reopened, as it would appear that she didn’t know of the lien prior to filing for bankruptcy protection. The court would likely allow her to reopen the bankruptcy case for that single purpose: filing a motion to remove the lien. This process (receive court order reopening the case and the next order removing the lien on the property) would take approximately 45-60 days.
If you have questions about how your ex’s bankruptcy could affect you, your property or your finances, please get in touch with one of the experienced southern California bankruptcy attorneys at Westgate Law.