Types of Bankruptcy
When filing for consumer bankruptcy, you must determine which type of bankruptcy you will petition the court for. If you do not have much income, you may qualify to file for Chapter 7, in which your non-exempt assets are taken by a court-appointed trustee and sold to pay your creditors. If you earn too much money to qualify for Chapter 7, you must seek protection under a Chapter 13 bankruptcy, in which you are placed on a three- to five-year plan to repay your creditors. At the conclusion of either type of bankruptcy, most of your remaining debts are discharged.
Debts that are secured by physical property, such as a car loan or mortgage, are treated differently in bankruptcy than credit cards and other consumer debt. In some circumstances, you might still be required to pay your mortgage or car loan even if you are under bankruptcy protection or else the bank could take back the property through eviction or repossession. Filing for bankruptcy does not remove your name from the deed to the house or car title.
Chapter 7 Bankruptcy
Your spouse is considered a co-debtor on your mortgage deed or car loan if he is still listed on these accounts after the divorce. When you file for Chapter 7 bankruptcy, you are relieved of your payment obligations on the property; however, he is not. Therefore, unless he also files for bankruptcy, he will be required to make the remaining payments. If the car and home are sold by the trustee in bankruptcy for less than is owed on the account, your ex-spouse may still be required to pay the lender for the difference.
Chapter 13 Bankruptcy
If you file for Chapter 13 bankruptcy and stay current on your creditor repayment plan, your ex-spouse is not required to make any payments on the property since the house or car is protected by a "co-debtor stay" created by your bankruptcy. However, if during your repayment plan, you are able to strip your home of its second mortgage or other junior lien or cram down your auto loan and not pay off the entire balance, creditors can seek payment of those debts from your ex-spouse.
Filing for bankruptcy while your ex-spouse is still listed on your mortgage deed or car loan might appear like a way to shift your financial obligations to your ex. However, he may have legal options to prevent you from deflecting your debts onto him. Your ex-spouse may file a lawsuit against you, seeking an order to have him removed from the deed or title or reimbursed for payments he made after you discharged your liability. If your divorce decree requires you to assume all financial burden for the house and car that you were awarded in the divorce and you fail to make your payments or take him off the deed and title, you may be held in contempt of court and subject to penalties, including fines and even jail time.