December 17, 2017

Creditors and Divorce Agreements

Dealing with divorce and bankruptcy at the same time is difficultMost married couples incur joint debts during their marriage, meaning that both spouses are liable for the debt.  Here are some general thoughts to consider if you find yourself contemplating, or going through, a bankruptcy and divorce in North Carolina.

Creditors don’t care about divorce agreements

Your creditors are not bound by your separation or divorce agreement with your spouse. Your spouse may agree to assume responsibility for a debt, and to hold you harmless for that debt.  This agreement does not prevent a creditor from trying to collect from you, for a joint debt, in the event that your spouse fails to abide by the agreement – fails to pay the debt.

Example:  If you and your spouse are both on the mortgage to the house, and your spouse agrees to pay the mortgage company in full and to hold you harmless, the mortgage company can still collect from you.

The only way to cut off or end your liability for a joint marital debt is to pay the debt off yourself, refinance the debt so that you are not a borrower in the refinance, settle your liability directly with the creditor, or discharge the debt in a bankruptcy case.  There are pros and cons to each of these options, and your particular circumstances will affect those pros and cons. A bankruptcy counseling session will help you.

If you have joint marital debts, or believe that there is property to distribute during your divorce, you would be wise to contact a bankruptcy attorney early in your separation or divorce, in order to determine your best course of action.