Debt, divorce and bankruptcy

Spouses in California who are experiencing significant financial challenges and who are also contemplating ending their marriages may need to carefully assess their options for how to manage their debt before making any decisions. Some people might need to consider filing for bankruptcy but they should understand some of the ramifications of doing this before or after they file for divorce.

As explained by Money Management, credit card debt is one common reason that many consumers end up seeking relief via a bankruptcy. Credit card debt is also something that needs to be divided or allocated during divorce negotiations. The way this is done may vary in part based on the assets the couple has and who will receive what portion of those.

Credit card debt is a form of unsecured debt, meaning it is not attached to any tangible item like an auto loan is to a vehicle or a mortgage is to a house. It may be beneficial for a couple to try to eliminate all unsecured debt prior to filing for bankruptcy. According to My Horizon Today, however, filing for a joint bankruptcy does require cooperation between the spouses. If this is not possible, it may be necessary to get divorced first and then to have each spouse deal with their own debt later.

Debts assigned to one person via a divorce decree may not be able to be eliminated via a subsequent bankruptcy. If the responsible party fails to pay the debts, the creditor may seek payment from the other spouse if the original debt was joint. Such a situation may force the second spouse to initiate legal action against their former spouse to pay the debt per the divorce decree.