Bankruptcy After Divorce in a Community Property State

Unfortunately, if you live in a community property state, bankruptcy laws allow the debts of your former spouse to be viewed as debt that belongs to you. There are several ways that these bankruptcy laws can affect you if your spouse files for bankruptcy after your divorce.

Debt Remaining in Both Spouse’s Names

If you and your spouse co-signed for debt during the marriage, bankruptcy laws in a community property state allow creditors to turn to you for that debt, even if your divorce decree says that the debt belonged to your spouse alone. You can attempt to convince the creditors that you are not responsible for the debt by showing them the divorce decree, but the fact remains that if your name has not been formally removed from the debt through a refinance or restructuring process, you may be required to pay. You could find your credit damaged if you don’t.

Community Debt

In a community property state, all debts incurred during the marriage are generally considered to belong to the community. When a debt is incurred during a marriage, even if you weren’t responsible for it, any property that was “formerly community property” can be considered an asset and used to settle the community debt. If your ex-spouse files a petition for bankruptcy, under bankruptcy law, the creditor can reach any “formerly community property” that you received in the divorce settlement to collect on a community debt.

Preventing Liability For Debt After Divorce

Unfortunately, creditors are likely to pursue you for payment after your spouse’s bankruptcy. This could shift the debt to you. If this happens to you, you will want to contact an experienced attorney as soon as you can to find out what options you may have to protect yourself from responsibility for your former spouse’s debts.

Case Studies: Bankruptcy After Divorce in a Community Property State

Case Study 1: Debt Remaining in Both Spouse’s Names

In this case, John and Lisa co-signed for a significant amount of debt during their marriage. Despite their divorce decree stating that the debt belonged to Lisa alone, bankruptcy laws in their community property state allowed creditors to hold John responsible for the debt as well.

John attempted to convince the creditors that he should not be liable by presenting the divorce decree, but since his name was not formally removed from the debt, he could still be required to pay. Failing to do so could result in damaged credit.

Case Study 2: Community Debt

Sarah and David accumulated various debts during their marriage, with Sarah being the primary borrower. After their divorce, David filed for bankruptcy. Under bankruptcy law in their community property state, the creditor could reach any property that Sarah received in the divorce settlement.

Even if it was designated as “formerly community property,” to collect on the community debt. This unexpected consequence put Sarah at risk of losing assets she obtained in the settlement.

Case Study 3: Preventing Liability for Debt After Divorce

Mary’s ex-spouse, Michael, filed for bankruptcy after their divorce. Unfortunately, creditors began pursuing Mary for payment, potentially shifting the debt burden to her. Worried about her financial stability, Mary sought the assistance of an experienced attorney who could advise her on how to protect herself from being held responsible for her former spouse’s debts.