How Does Bankruptcy Affect an Ex-Spouse After Divorce?

Finance series

Once your divorce is complete you expect that any financial ties you and your ex-spouse once shared are severed forever.  However, what happens when your ex-spouse defaults on a debt or files for bankruptcy and seeks to discharge debts that belonged to both of you during the marriage?  In marital property states such as Wisconsin, when a debt is incurred during the marriage, it does not matter if the debt is in one spouses name or the other.  Any debt incurred during the marriage is deemed to be a joint debt under marital property laws.   A judgment of divorce separates the debts as to the spouses, but not  as to the creditors.  If a spouse who was assigned a debt under the judgment of divorce defaults on said debt or files for bankruptcy, it is possible that the creditor will seek payment from the other spouse.   Creditors are not part of the divorce process and are not required to follow the terms laid out in the agreement.   So what do you do when a creditor comes after you for a debt that was assigned to your ex-spouse?

If you hired a proactive divorce lawyer, the answer to the problem is clearly laid out in your Judgment of Divorce.  A well thought out Marital Settlement Agreement will have language dealing with this type of situation.   Should a spouse default on a debt, then the Judgment of Divorce should have language which will allow you to seek remedies from your ex-spouse in family court.   Understand, this does not sever the responsibility you have to the creditor, but it will require your ex-spouse to pay you so you can pay the creditor.   Therefore, if a debt is discharged in bankruptcy and the creditor starts collection efforts against the non-bankrupt spouse, the non-bankrupt spouse can go back to family court to obtain an order for the bankrupt spouse to pay the discharged debt.   In Wisconsin, the court will often order maintenance or “spousal support” to assist you in re-paying the debt which was the responsibility of your ex-spouse.  If your divorce decree is silent with regard to this situation, you can file a contempt action against your ex-spouse in hopes of recovering the money you have to pay the creditor.

To further protect ex-spouses, the Bankruptcy Code was modified in 2005 which changed the type of debt that can be discharged.  Under the new law, if your ex-spouse filed a Chapter 7, a debt owed to a spouse that resulted from a Judgment of Divorce or any subsequent court order may not be discharged (i.e. property division, spousal support, child support arrears, payment towards children’s medical bills).

If a Chapter 13 is filed and completed, the rules are different and you must consult with a bankruptcy attorney to determine how your debt is affected.    If you find yourself in this situation where your ex-spouse files for bankruptcy, you may want to consult with a bankruptcy lawyer to confirm the whether your particular debt is dischargeable.

There are also times where as a result of a post-judgment motion the court orders your ex-spouse to pay you an amount of money as a result of a motion for clarification, contempt or reconsideration of the orders.  For instance, a court may order your ex-spouse to reimburse you for expenses related to the sale of a home or other asset, reimbursement for variable costs or even attorney fees.  Your ex-spouse will not be able to discharge these debts in Chapter 7 bankruptcy (the rules may be different for Chapter 13) and he or she will still owe you the debt after the bankruptcy.  It may be necessary to file a motion in family court to ensure your ex-spouse is specifically aware that his or her responsibility still exists.

Should you find yourself in a situation where a creditor is attempting collections from you and the debt is your ex-spouses responsibility under the Judgment of Divorce, contact Nelson, Krueger & Millenbach at 414-258-1644 to schedule a free initial office consultation to discuss your situation and options.

We welcome your comments or questions. We will do our best to try to respond. However, please be advised that we cannot give legal advice in this forum and all communications are for general informational purposes only. Communication should not be construed as forming an attorney-client relationship. This is an open forum and any information you provide may be posted and will not be held confidentially. By posting a comment or question, you are expressly giving consent for the publication of same. If you have any specific legal issues or concerns, we always recommend that you consult with an attorney in the county and state in which you reside.

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