There are many couples that end their relationship on a rough note financially. In these situations, one might be in more financial trouble than the other or they could just decide to handle it differently. Regardless, one of them files for bankruptcy and the other decides not to file for bankruptcy. The one that files for bankruptcy has all their debt discharged. What happens to the debt that was discharged on behalf of the ex if it was a joint account?
It’s an extremely common question. One spouse avoids filing for bankruptcy, but other files. Does that mean that the spouse that did NOT file for bankruptcy is not liable for 100% of the joint debt? Had the ex not filed for bankruptcy, they could be held accountable for their half of the debt, but since they DID file – they are free from liability.
Here’s how it works:
Janet and Jim obtained an apartment together when they were married. Both of their names were on the contract. They also obtained a credit card in both their names They fell on hard times and were unable to keep up with their credit card payments and their monthly rent payment. They were evicted. After they were evicted, they got divorced. Once the divorce was final, Jim filed for bankruptcy and received a discharge of his debts (including the debt for the apartment and the joint credit card). Both Janet and Jim were both 100% liable for both debts since their inception – meaning that the creditor has the legal right to demand payment in full from either one o the joint holders. Since Jim filed for bankruptcy and eliminated his liability for the debts, the creditor cannot demand payment from him at all, but they can still demand 100% payment from Janet. If Jim had not filed for bankruptcy, Janet could have gone after him legally to force him to pay his half of the debt. (Although that is a huge can of worms in itself).
In this type of situation, the best advice that can be offered is to address it as soon as possible. The debt will not go away on its own. It will follow you around until you eventually take care of it. If the “eventually” is years down the road, you’ll find that the balance may have grown quite a bit in the interim.
If you have an “old debt” haunting you and aren’t sure what to do next, get in touch with the southern California bankruptcy attorneys at Westgate Law and go over your case with us in detail.