Today’s question is one that often arises. It has to do with how divorce impacts bankruptcy and vice versa. The question is this: “My ex-husband and I file chapter 13 three years before we got divorced. In the divorce settlement, the payments for the bankruptcy was his responsibility. Today, I was notified that the bankruptcy got dismissed because he was in default.”
To answer this question completely requires a little understanding of how Chapter 13 works. It appears that this couple had a bunch of debt, filed Chapter 13, got a plan confirmed and then got a divorce. In the divorce the debts were assigned to the husband by way of an order that he make the payments under the Chapter 13 plan. If the Chapter 13 plan had been completed as confirmed, at the end of the plan any debt remaining would have been discharged, meaning neither party would have any further legal obligation to pay that debt.
However, when the Chapter 13 got dismissed the chance for a discharge vanished. All of the debt returned. Technically the debt never went away; it was just held off pending completion of the plan. But upon dismissal the creditors are then able to come after either party. The fact that the divorce decree orders the husband to pay the debt doesn’t relieve the wife of the obligation to the creditors. They weren’t parties to the divorce and aren’t bound by the divorce decree. While the wife has a claim against the husband for payment of that debt she’s still open to lawsuits from the creditors.
Her options are not pretty. She can pay the debt and then go after her ex for the amounts she paid; she can let the creditors sue her, get judgments and deal with that for the next several years; or she can file bankruptcy herself.
Bankruptcy and divorce are not a happy couple. In general if you’re considering both divorce and bankruptcy it’s best to do the bankruptcy first. That way there is only one case and you can go into the divorce with the debts taken care of.