Let’s pick up the thread we began exploring last week regarding the effect of a divorce proceeding on liability for joint debts. A divorce settlement may assign one party to the settlement to pay certain debts that the couple had.
But what does really mean in practical terms? After all, mortgage companies and other creditors are not actually part of a divorce settlement. They could conceivably try to collect a debt from either of the divorced parties, even if the divorce decree assigned the responsibility for paying it to only one spouse.
The issue is a common one in the San Antonio area and across the nation.
If the house goes to your former spouse in the divorce settlement, it may seem natural to think that having your name taken off the deed should relieve you of any responsibility to contribute to mortgage payments.
Unfortunately, that is not necessarily the case. After all, a deed is a reflection of ownership. It is different from a mortgage loan, which is about an obligation to pay.
It becomes a different situation, however, if the spouse who did not get the house files for personal bankruptcy. Such a filing is a way to effectively get out from under liability for the mortgage loan.
To be sure, post-divorce dealings with ex-spouses can be messy. An ex-spouse may want the former partner to reaffirm the mortgage debt, even if bankruptcy has removed liability for it.
How someone responds to such a request depends on individual circumstances. Those circumstances need to be acknowledged. But the benefits of a bankruptcy filing should be acknowledged as well.
Source: Fox Business, “How Does Divorce Affect Bankruptcy and Mortgage?” Justin Harelik, July 3, 2013