Dear Bankruptcy Adviser,
My ex-wife filed bankruptcy. In our divorce documents, she agreed to pay back a loan to someone we both owed money to. Now, she is trying to file bankruptcy and eliminate that debt. Can she do that? Do I need to fight her in bankruptcy court?
This is an excellent question. I have answered a variation of it numerous times over the years, but you do address something a bit more specific: Do you need to protect the divorce agreement provisions when your ex files bankruptcy?
I believe this answer applies in all 50 states, but you might want to have a short consultation with your divorce attorney to confirm. If you handled the divorce on your own, it might be worth paying for a consultation.
Bankruptcy law specifically addresses this issue. Divorce agreements, sometimes called marital settlement agreements, survive a bankruptcy discharge. Many times, I will receive calls from prospective clients who agreed in a divorce to pay on marital debts. The individual is hoping to eliminate debt that he or she agreed to pay in the divorce agreement. He or she cannot
For example, say a husband and wife have a joint credit card. As part of the divorce settlement, one spouse agrees to be personally responsible for some or all of the credit card debt. That spouse then wants to file bankruptcy eliminating that liability. Fortunately, for the non-filing spouse, the liability survives that bankruptcy.
There is one big exception to this: When both spouses file bankruptcy after the divorce, the debt is discharged for both parties.
If you didn’t file bankruptcy and are legally liable on this debt, you can enforce the divorce agreement even after your spouse completes her bankruptcy. The divorce agreement outweighs the bankruptcy discharge. Enforcing the agreement will require filing a motion and going back to family court, but you will not need to fight her in bankruptcy court.
However, an ugly situation could arise if that money is owed to your family or a friend. In most cases, if your ex isn’t paying, your family or friend would not sue you to pay on the debt, but they would still have the right to sue you unless you filed bankruptcy yourself. If that right exists, you then have the right to make your ex pay.
In the divorce agreement, the ex-spouse agreed to continue paying on that debt. I would say that if you personally are legally responsible to pay on the debt, you could still enforce the divorce agreement.