Debt, divorce and bankruptcy: ex gets the bill?

Dear Bankruptcy Adviser,
My ex-wife declared bankruptcy for all the debts we accrued jointly. How does this affect my standing and how do I recover without having to declare? Is there even a chance of that, or would I be better off filing and starting over? Being a technician type, I am a bit financially retarded. Please assist. Also, I have learned the hard way financially, trust but verify and never have anything jointly with another person … EVER!
— Mike

Dear Mike,
OK, there are a number of different issues here, so what I’d like to do is take a page from Stephen Covey’s book and begin with the end in mind. Here’s the end goal: You emerge from the divorce without having declared bankruptcy. How do we achieve this happy ending?

First, prepare to acknowledge reality: Mike, the fact is that if you signed your name to that piece of paper to open the line of credit with your ex-wife, if you co-signed for that loan, then you are liable for all the debt accrued with that account. This debt will be yours even if she has the debt successfully discharged. In other words, as the nonbankrupt spouse, you do not receive any protection from the government. The divorce judge may have assigned responsibility to your ex for certain debts, but the bankruptcy judge can nullify that responsibility. Creditors can and will come after you legally and demand to be paid in full.

Second, demand to know the truth: While you say the debts are jointly accrued, are you certain? That area should have been explored thoroughly during your divorce, but perhaps it wasn’t. In your own words, I would verify. State laws vary greatly in how they assign responsibility for debt. For example, you may be in a community-property state, where debts can remain the property of one individual, even in marriage. In that case, perhaps you were an authorized user on an account and not a signatory — meaning, perhaps she was the one who signed up for the credit card and has responsibility for the account and authorized you to use it. Under that scenario, you would be an authorized user, but not responsible for the debt. But if you are a co-signer, you are 100 percent responsible for the full balance. Under the Fair Debt Collections Practices Act, collectors are required to provide verification of your responsibility for the debt. In this case that’s evidence of your signature on the application. Send a letter (always send it certified) requesting this verification and on top of that, send a fax with the same message.

Third, make a plan and follow it: Mike, your strategy will depend on how much debt is your ex’s and how much is yours, but for the sake of argument, let’s suppose that she is solely responsible for most of her debts and that these debts will be largely eliminated through bankruptcy. At that time, your debt will be far less and your credit can be re-established. If the debt is 100 percent your obligation, then you will need to either settle your debts with each creditor or consider joining your ex one last time, in a sense, by filing bankruptcy, too. All creditors are willing to accept something rather than nothing. Unfortunately, your credit will be harmed significantly, but you might not have another choice.

Fourth, have a backup plan: If your credit or financial situation deteriorates, consider bankruptcy to stop the bleeding. You can bring all the delinquent accounts together for the purpose of discharging them forever. Then you can work to re-establish a positive credit history.

Finally, you speak of never again getting involved financially with someone else. In that case, I would advise you to fall in love, marry and settle down only in a state with no community-property laws. In states that do have community-property laws, any asset or debt incurred during a marriage belongs to both, regardless of who signed the paperwork.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser go to the “Ask the Experts” page, and select “bankruptcy” as the topic.