There are many things to consider when divorcing in Maryland, and many common problems can be difficult to foresee. For example, imagine that a couple jointly owes debt on property they owned while married (say a mortgage). They then get a divorce, and the ex-wife receives the marital home in the divorce and agrees to pay the mortgage. She subsequently files for bankruptcy. Could the bank hold her ex-husband liable for the outstanding debt? The short answer is yes, even if there is a valid property settlement agreement in place.
In a divorce, property settlement agreements may provide that one spouse (in our example the wife) will agree to take on the marital debt (again, let us use the example of a mortgage). Usually, the settlement will also state that the spouse who is assigned the debt (the wife) must indemnify the other spouse (the husband) if she does not pay the debt and the bank goes after him. If the wife does not pay her mortgage, and the mortgage company attempts to collect the debt by taking the husband’s new personal property, the ex-wife must pay him back. (Because of the problems this situation creates for both spouses, we always recommend that the house either be sold and the proceeds divided, or refinanced by the spouse who remains so the departing spouse has no long term exposure).
But what happens if she declares bankruptcy? The short answer is that it depends what type of bankruptcy a person declares.
If the wife in our example files for Chapter 7, she no longer has an obligation to pay the debt to the bank, yet still must indemnify her husband if the bank attempts to collect that debt from him.
If the wife in our example files for Chapter 13 bankruptcy, she no longer has to pay the debt to the bank, but she also no longer has a duty to indemnify her husband. In other words—if your ex-spouse files for Chapter 13 bankruptcy, you may be held responsible for paying their debt—even after your divorce, and even if you have a legally binding property settlement in place.
Another key aspect worth noting is that if a spouse declares bankruptcy, any property that they receive within 180 days of filing (including property received by way of divorce decree or settlement) is included as their personal property.
If spouses file a joint Chapter 7 bankruptcy while still married, then they would both discharge their debt so there would be none to assign to the other spouse in the property settlement agreement. If this can be done, it is often advisable (depending on the couple’s specific circumstances).
Towson Divorce Lawyers at Huesman, Jones & Miles, LLC Represent Couples Dealing With Bankruptcy and Divorce in Maryland
If you have questions about the implications of bankruptcy on your past or future divorce settlement, you need an experienced lawyer on your side to protect your interests. The respected Towson divorce lawyers at Huesman, Jones & Miles are well versed in all aspects of bankruptcy and family law. To schedule your free consultation today, call us at 443-589-0150 or contact us online. We pride ourselves on our responsiveness to all of our clients.