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Bankruptcy After Divorce – Affects Non-filing Spouse

bankruptcy after divorce
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Bankruptcies declared after a divorce  can adversely affect the non-filing spouse.   If your divorce settlement agreement is done incorrectly, it could create a financial disaster.   Debtors must decide on whether to file bankruptcy before or after a divorce.   Your post-marriage obligations must be specific in your settlement agreement.

Below is an example wherein a spouse files Chapter 7 bankruptcy after a divorce.   In this case, the non-filing spouse was adversely affected.   However, this could have been prevented.

Bankruptcy after Divorce – Husband Files Chapter 7 Bankruptcy

  • The marital settlement agreement, obligated the debtor to pay most of the marital debts
  • Nevertheless, the settlement Agreement did not include a hold harmless or indemnification provision.
  • Agreement is incorporated into State Court Order.
  • Ex-wife files a motion in State Court.   
  • She alleges her former husband (Debtor) failed to comply with the State Court order of marital debts.
  • Husband declares Chapter 7 bankruptcy after the divorce.
  • Ex-wife initiates an adversary proceeding.   
  • The non-filing spouse states a claim against her ex-husband (Debtor). 
  • Claim is based on her ex-husband’s failure to pay agreed-upon marital debts. 
  • Ex-wife bases her adversary complaint on the premise of the specific terms of the settlement agreement and the Court Order.

Should the non-filing spouse’s claim be excepted from discharge in the declared bankruptcy of her ex-husband?

Bankruptcy Filing After Divorce – Affect on Non-filing Spouse:   

  • The Court recognize the “new debt”
  • A “new debt” obligation to a former spouse or spouse is created generally by a hold harmless or indemnification provision within a domestic order or agreement. 
  • This provision was clearly not in the agreement.  
  • Both parties were represented by Counsel.   Either party has a right to indemnification as it relates to marital debts.  That obligation should have and could have been included.
  • Debtor could include the marital debts in his Bankruptcy case.

When a written agreement is drafted and signed, you must be careful that all provisions are clearly spelled out.      The example above indicates that an agreement can have either a negative or positive affect on bankruptcy.   However, each situation is taken case by case in bankruptcy.

Know your rights.   I am a Board Certified Bankruptcy Lawyer here to protect both debtor and creditor rights.