Debts that one or both spouses can't repay create stress in a relationship, and divorce and bankruptcy may be inevitable conclusion. Whether it is better to file for bankruptcy before or after divorce depends on your personal financial circumstances, the laws of your state and the other issues looming in your divorce. Divorcing your wife may not save her from filing bankruptcy, depending on the disposition of your marital debts.
Jointly Held Debt
Both spouses are fully responsible for payment of jointly held credit cards and loan accounts. Although a divorce court may assign these debts to one spouse or the other, credit collection companies are not bound by these agreements and may collect from either spouse, according to the Rutgers Extension Money2000. If a husband agrees to take on all of his wife's debts in a divorce, but then is unable to pay them off, his wife may still need to file for bankruptcy.
Individually Held Debt
Whether divorce will relieve a wife of the husband's individual debt depends on where you live and the nature of the debt. In community property states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- debt accumulated by one spouse in his or her name individually during the marriage is still considered joint debt, according to the Federal Trade Commission. In other states, if a collection action has already started for an individual debt and joint assets have been attached, divorce will not necessarily remove that asset from the creditor's clutches. In some states, a court may consider one spouse's debt to be joint marital debt if it was incurred for medical expenses or contributed essentials to the household.
Reassigning Credit
Lenders do not have to agree to switch joint credit card, mortgage and other loan accounts to one spouse, but may require that spouse to reapply for financing based on his or her own individual credit, according to the Federal Trade Commission. If a sole spouse can not get the credit on his own credit record, that account may need to remain jointly held, or the spouses will have to find some way together to pay it off, such as selling a house to clear a mortgage. Filing divorce to relieve a wife of her husband's debts may not be beneficial if she cannot obtain credit or refinance the mortgage based on her own income and credit record.
Joint Bankruptcy Considerations
Married couples can file bankruptcy jointly, saving the expense of two filing fees and two sets of paperwork after divorce, according to Attorney Douglas Jacobs at Bankruptcy Law Network. A joint bankruptcy can also address individual debts from before and during the marriage, as well as debts incurred during the marriage. However, considering both incomes together may exceed the threshold for allowing Chapter 7 bankruptcy filing, which would allow full discharge of the debts, and you might not be able to support a Chapter 13 bankruptcy repayment plan while supporting two households after divorce. Joint bankruptcy will also affect both of your credit records, while one spouse filing bankruptcy after divorce will affect only that spouse's credit record. Consult a knowledgeable attorney and financial professional to help you determine whether divorcing before filing bankruptcy is the better course for you and your spouse.
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