In better times, divorce was about splitting the assets. I will give my colleague Bill Balena credit for the following regarding bankruptcy and divorce:
Divorce is not about splitting assets anymore, it is about splitting debt.
I don’t see clients arguing over who gets to keep the house, or the car, because there isn’t any equity in either anymore (unlike during the real estate boom) or when incomes were higher and everyone owned their cars outright.
So the argument turns over who is going to be responsible for the note and mortgage on the home and the joint credit cards.
Could an ex-spouse ruin your credit? Absolutely. If the husband and wife are on good terms, I would suggest that filing bankruptcy together, then filing divorce is the best route. It will save money by eliminating debt (only one bankruptcy fee) and save money by narrowing the issues for the divorce as well.
Many spouses are confused as to who is personally responsible on the credit cards. Did you both sign the cardholder agreement, or is one of you only an authorized user. There is a huge difference.
Did you both sign the promissory note on the home mortgage? If one spouse continues to pay for the home after divorce, what happens if he or she falls behind later? The lender could chase the spouse who hasn’t lived there in months or years.
If you are jointly responsible for both cars, if your spouse stops paying, or can’t pay for the car, you are on the hook.
That is why a bankruptcy filing may clear up all of the nasty debt issues.
Discharge the debt on the house. So if your former wife still lives there, you aren’t responsible if she defaults later.
Did your husband run up a credit card to get a business started? Then discharge the credit card in bankruptcy and you are no longer responsible for the credit card he wants to keep.
Same thing goes for each other’s car. Surrender your interest in each other’s car loan.
Too many times I hear people tell me that the credit card company is chasing them but that “my spouse was ordered to pay the card in the divorce”. Well that may lead to contempt of the divorce court order, but that does not prevent the credit card company from chasing everyone who is personally responsible for the credit card.
The most important issue is qualifying for the bankruptcy before the divorce. Many times one spouse is the breadwinner. For the “family” to file together as a household of four (husband, wife, and two kids), they may easily qualify for chapter 7.
But what happens if you are now two separate households? Breadwinner spouse lives alone (household of 1) and he or she does not qualify for chapter 7 because of too much income, and may have to file chapter 13. At the same time, the other spouse (with the two kids) is a household of 3 and easily qualifies.
You should have filed bankruptcy together before the divorce! And you would have saved one of the two attorneys fees for filing bankruptcy.
We won’t even approach how much in divorce attorneys each spouse will save because they are not spending countless billable hours fighting over who is responsible for each debt.
When you want to move on with your life, what could be worse than being reminded of a painful chapter when a debt issue from the past comes back to life?
When a divorce is inevitable, you should seek bankruptcy advice first.