Bankruptcy Questions Answered: What if Your Ex-Spouse Files for Bankruptcy?

Divorce and bankruptcy can be difficult and arduous paths, whether they’re taken jointly or individually. If you find yourself divorced and learn that your ex-spouse is filing for chapter 7 or chapter 13 bankruptcy, your first thought might be whether it will affect you somehow. The answer is, it depends. In this article we’ll get into the variables at play and how they can determine the outcome of a bankruptcy filing on your financial situation.

Being party to a debt with an ex-spouse essentially puts you in the same position as a cosigner, and while we’ve already discussed the implications of bankruptcy on a cosigner this is a different situation, and there is a lot more to learn. Let’s get into it.

How An Ex-Spouse May File for Bankruptcy In Ohio

The types of bankruptcy common for divorced individuals are the same three that are the most common among folks in general: 

• Chapter 7 Bankruptcy: selling and liquidating assets to pay off creditors paired with discharge of remaining debts
• Chapter 13 Bankruptcy: retaining possession of assets while repaying debt according to a three to five years repayment plan.
• Chapter 11 Bankruptcy: restructuring and repayment of debt for business owners

If you are in touch with your ex-spouse they may notify you that they are filing for bankruptcy. However, if you are not aware, you may not find out until a creditor gets in touch with you. This can be a frightening experience, especially if they are reaching out to try and secure repayment from you. To find out whether your ex-spouse is filing for bankruptcy in Ohio you will need to know some of their personal information to search through online databases, which is possible, since bankruptcy filings are a matter of public record.

Divorce and Bankruptcy In Ohio

The first, and most logical, question you might ask is, “Doesn’t divorce protect me from my ex-spouse’s creditors?” Well, it depends on the nature of the debt you both incurred while married. Every type of bankruptcy will have a potentially different effect on both ex-spouses, depending on whether they shared the debt during marriage.

Many married couples share the debt incurred in order to own property or are joint owners of credit accounts. Any legal and financial documents that list both of your names remain binding, even if you are divorced. Now, it is true that through the process of divorce, assets and debts are divided and assigned to be repaid by one party or the other. However, if you are both still listed as co-signers or co-owners, since the lender was not party to your divorce, it is not legally binding on them. That can mean that if an ex-spouse who retains the family home or other property files for bankruptcy, and then fails to keep up with payments, can cause creditors to come after you, if you are still listed as a co-signer or co-owner. Remember: the divorce decree is between you and your ex-spouse, not creditors or lenders.

Chapter 7 And Chapter 13 Bankruptcy And Divorce

In the case of a chapter 13 bankruptcy filing, where the filer is on a repayment plan and they fall behind with payments, it is possible that creditors and lenders could come after you if you are also listed as a co-signer. However in most cases, since a chapter 13 bankruptcy has a safety clause called the co-debtor stay, you could be protected against creditors. However, if creditors petition the court to lift this stay in the case that they do not receive repayment, you could be held legally responsible for your ex-spouse’s portion of your shared debt. Another case in which a chapter 13 bankruptcy could result in creditors seeking repayment from you is if, after the three to five year repayment period, your spouse has not fully repaid their debt, and you are listed on the mortgage or other legal document.

In the case of a chapter 7 filing, where assets are sold and debt is then either repaid or discharged, your ex-spouse would be in the clear. Creditors could then end up seeking repayment from you, if you are still legally party to the debt. That means that your ex-spouse might be free of the debt, thanks to their bankruptcy filing, but you end up having to repay it in their place. If you cannot or will not meet the requirements you both agreed to when taking on the debt, the lender can foreclose on property or otherwise exact reimbursement for the debt. If your ex-spouse is still living in the home, and if children are involved, this can quickly become a very fraught situation.

Creditors aren’t particular about who pays the debt on a joint account–they just want to ensure they’re paid. So while the divorce decree may stipulate who is responsible for paying a joint debt, if that payor doesn’t pan out, lenders and creditors will move on to anyone else who is listed as a co-owner or co-debtor.

Whatever the case, it is wise to meet with an experienced Ohio bankruptcy lawyer to ensure that your rights are protected and you are able to weather this potential financial storm with the least amount of personal repercussions. And it is good to note that with any type of bankruptcy, money owed to you by an ex-spouse for child support or alimony are among debts that cannot ever be included in their debt dischargement. The same holds true if the divorce court ordered that your ex-spouse pay some of your attorney fees from the divorce.

Bankruptcy or Divorce–Which Should Come First?

If you and your spouse are considering divorce, and either one of you feels that you may need to file for bankruptcy, sometimes, depending on the situation, it could make more sense to file for bankruptcy before divorce. This would be one way to avoid all the complications with debt repayment that arise when either of you file for bankruptcy on shared debt after the divorce is finalized. It can also reduce the number of financial issues to hash out in divorce court, and it can be more cost effective overall, since you will both share the bankruptcy attorney and court costs. However, if your joint income would put you outside of the threshold for a chapter 7 bankruptcy filing, then it may not be as beneficial, because debt would not be discharged–you would need to repay it over time. 

Of course if your relationship is hostile or you are threatened in any way, then it makes more sense to get out of that negative situation and worry about filing for bankruptcy later. Sometimes the risks outweigh the benefits.

What To Do Before An Ex-Spouse Files For Bankruptcy

While you cannot know ahead of time if an ex-spouse will end up filing for bankruptcy, you can take some steps to protect yourself in case it happens. Since we have already established that lenders and creditors are not bound by the divorce decree, the most important thing to do is to eliminate joint debt wherever possible. Besides a joint filing for chapter 7 bankruptcy prior to divorce, here are some more ways to protect yourself against creditors looking for repayment of an ex-spouse’s debt: 

• Refinance property so that it is only in the person’s name who will be awarded the property by the court
• Application for an assumption of a mortgage by the party who will have ownership and residence
• Sell jointly held property and divide the proceeds
• Pay off joint credit card accounts and obtain separate credit accounts 

These are complicated situations, and it is important to turn to a professional who is familiar with the legal issues involved. An experienced Ohio bankruptcy lawyer is your best bet.

Get Your Bankruptcy Questions Answered By Our Ohio Bankruptcy Lawyers

Now that you are out of your previous marriage, you may not think much of how that ex-spouse’s financial situation could potentially impact your financial situation and future. But when it comes to jointly held debt or owned property, a divorce doesn’t end things from a legal perspective. So if you find out that your ex-spouse is filing for bankruptcy, it is important for you to work with a bankruptcy attorney too. That is the best way to ensure that your interests and finances are protected.

For help with all things bankruptcy in Ohio, contact our Northeast Ohio Bankruptcy Attorneys–we’re here to help. Hausen Law is happy to serve all of Northeast Ohio, including the Akron, Canton, Cleveland, Wooster, Dover/New Philadelphia, and Youngstown communities. Contact us today to set up a free consultation or to inquire about our credit counseling and credit repair programs.