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One reason why divorce and bankruptcy can go together

When two people get married, they usually get tied up financially to one degree or another, whether in purchasing a home, a vehicle, sharing a credit card or a joint savings or checking account. When a couple divorces and one party obtains a discharge on joint debts, the other party can be left holding the bag. This can be frustrating, particularly if it was agreed during divorce negotiations that the other party would be responsible for that debt.

Bankruptcy discharge, from a legal perspective, removes a debtor’s liability on a particular debt such that the creditor may not seek to collect that debt from that party any longer. Creditors are then forced to go after any joint account holders for the full amount of the balance. 

When a divorced party is held responsible for a debt that the other party agreed to pay during divorce negotiations, the former party is able to hold the latter liable for the debt on a contractual basis in court. So, it should be kept in mind that divorce agreements can ultimately make a divorced party responsible for such debt even after bankruptcy, but it isn’t the creditor’s job to sort that out. It is the job of the non-bankrupt joint account holder.

For some divorcees, this realization can be shocking as they are hit with a large balance they didn’t figure on being responsible for after divorce. For some, it may require an extreme response like filing for bankruptcy.

In fact, it isn’t uncommon for financially challenged couples to both go through divorce and bankruptcy at around the same time. Sometimes bad things come in pairs that way, though bankruptcy does bring the possibility of a fresh start for financially stressed debtors. For that reason, it can be a good thing, despite the challenges that come with it. 

Source: Fox Business, “Ex Filed Bankruptcy—is Mortgage All on Me?,” Justin Harelik, November 26, 2013. 

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