When a couple divorces, the court issues a divorce decree that divides assets and debts between the spouses, but either spouse can file bankruptcy after the divorce. If your ex-spouse files bankruptcy rather than paying the debts assigned to him in the divorce, you may have to deal with creditors of joint debts on which you are still listed.
Your divorce decree’s terms control your behavior and that of your spouse -- but not your creditors. If your divorce decree assigns a joint debt to your spouse for payment but he files for Chapter 7 bankruptcy, your creditors can pursue repayment from you instead, even if your divorce decree says otherwise. If your ex-spouse has debts listed only in his name, creditors likely cannot collect that debt from you, though they may try to harass you into paying.
Chapter 7 Discharge
Your ex-spouse could file Chapter 7 bankruptcy, which may involve the sale of certain assets. A bankruptcy court can give your ex-spouse a discharge, or elimination, of debts that remain unpaid because there are not enough assets to cover them. However, only your spouse is relieved of the obligation to pay these debts, so you are still liable to pay even if your divorce decree says the debt belongs to your ex-spouse.
If your marital settlement agreement or divorce decree contains a “hold harmless” clause, the clause makes your ex-spouse responsible to pay your share of certain debts, even when your name is on the debt. In some ways, such a clause supersedes some bankruptcy and contract laws because it prevents the bankruptcy court in a Chapter 7 case from entirely erasing your ex-spouse’s responsibility to pay the debt. The bankruptcy court can only discharge your ex-spouse's obligations to the creditor, not his obligation to you. You may initially have to pay the debt if your spouse fails to do so, but you can take him back to court to enforce the terms of your divorce, specifically the hold harmless clause. The court can order your ex-spouse to reimburse you for any payments you had to make on the joint debts.
Your ability to enforce a hold harmless clause applies only to a Chapter 7 case. Chapter 13 bankruptcy, which involves a repayment plan over three to five years, can override hold harmless clauses because the court is able to eliminate your ex-spouse’s obligation to pay you back if the creditor comes after you to collect the debt. However, your ex-spouse’s Chapter 13 bankruptcy offers you the protection of an automatic stay, or postponement, of collection actions on joint debts, so the creditors cannot come after either of you while the Chapter 13 case is pending.
References & Resources
- California Bankruptcy Blog: Can Bankruptcy Get Rid of Divorce Debt from a Hold Harmless Clause?
- SCV Bankruptcy: Chapter 13 Co-debtor Stay
- Federal Trade Commission: Consumer Information
- Law Offices of Michael A. Meschino: Post Decree Matters
- Los Angeles Bankruptcy Blog: Ex-Spouse Didn’t Pay Credit Cards as Ordered by Divorce Court
- Comstock/Comstock/Getty Images