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Los Angeles Bankruptcy Lawyers / Blog / Bankruptcy / Dealing with Joint Debts in Divorce and Bankruptcy

Dealing with Joint Debts in Divorce and Bankruptcy


Navigating the financial complexities of a divorce can be challenging, especially when intertwined with the prospect of bankruptcy. One of the most pressing concerns for couples in this situation is the management of joint debts. At Wadhwani & Shanfeld, we understand the intricacies involved and are committed to providing clarity and guidance on how to manage joint debts amid divorce and bankruptcy and how these legal processes can impact responsibility for these debts post-divorce.

Divorce and bankruptcy have a complex relationship, particularly concerning joint debts. When a couple decides to part ways, their shared financial obligations don’t automatically dissolve. If bankruptcy is also involved, determining who is liable for these debts can become even more complicated. The timing of filing for bankruptcy—before, during, or after a divorce—can significantly affect both parties’ financial responsibilities.

What are Joint Debts?

Joint debts are financial obligations that both spouses have agreed to pay back. Common examples include mortgages, car loans, and credit card debts. In a divorce, these debts must be divided along with assets. However, how they are handled in bankruptcy depends on various factors, including the type of bankruptcy filed and state laws.

In Chapter 7 bankruptcy, qualifying debts can be discharged, releasing both parties from their obligation to pay. However, if only one spouse files for Chapter 7, creditors can still pursue the non-filing spouse for the full amount of any joint debts.

Chapter 13 involves a repayment plan, where joint debts can be included. If one spouse files for Chapter 13, they may be responsible for repaying the joint debts through the plan. However, the non-filing spouse might still face collection actions for any unpaid portion of the debt after the bankruptcy concludes.

The Impact of Divorce Decrees

A divorce decree may assign responsibility for joint debts to one spouse. While this agreement is binding between the spouses, it does not alter agreements with creditors. If the responsible spouse fails to pay, creditors can pursue the other spouse for payment, regardless of the divorce decree.

Strategies for Managing Joint Debts

Filing for bankruptcy before a divorce can simplify debt division by discharging or reorganizing joint debts. This can provide a clearer picture of each party’s financial responsibilities, making the divorce process smoother.

Including indemnification clauses in the divorce decree can offer some protection. These clauses can stipulate that if one party fails to pay a joint debt, they must compensate the other party for any resulting financial harm.

Refinancing joint debts into the name of the spouse responsible for the payment post-divorce can eliminate the other spouse’s liability to creditors. This is often used for mortgages and car loans.

Closing joint credit card accounts and opening individual accounts can prevent additional joint debt from accumulating during the divorce and bankruptcy proceedings.

Navigating Bankruptcy and Divorce Together

When facing both bankruptcy and divorce, strategic planning is crucial. Consider the following steps:

  1. Consult with a Bankruptcy Attorney: An experienced attorney can provide advice tailored to your unique situation, helping you understand the best timing for filing for bankruptcy in relation to your divorce.
  2. Communicate with Your Divorce Attorney: Ensure your divorce attorney is aware of your bankruptcy plans. Coordination between your bankruptcy and divorce attorneys can lead to a more favorable outcome.
  3. Understand Your State’s Laws: Bankruptcy and divorce laws vary by state, particularly concerning property division and debt responsibility. Familiarize yourself with your state’s laws to better navigate your situation.

Contact Wadhwani & Shanfeld

Managing joint debts during divorce and bankruptcy requires careful consideration and strategic planning. By understanding the implications of each process and taking proactive steps to protect your financial interests, you can navigate these challenges more effectively.

At Wadhwani & Shanfeld, we’re dedicated to supporting our clients through every step of their bankruptcy and divorce proceedings. If you’re grappling with joint debts and considering bankruptcy, contact us to explore your options and develop a plan tailored to your needs.




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