Your Ex is Filing Bankruptcy and you Co-Signed on Property: Are you Affected?
Property division is one of the many complications of divorce. Let’s say in your divorce, the home you co-signed on with your ex was awarded to her. Now you discover that she’s filed for bankruptcy. The house and its associated debt are her concern, right? Well…maybe.
The mortgage company doesn’t much care about your relationship with your ex. They care that your name is on the line saying you’ll be responsible for the payments. Defaulting impacts both of you, and bankruptcy complicates matters.
In a Chapter 13 filing, you may not feel any pain from the bankruptcy. Essentially, your former spouse has restructured her finances and is required to continue making mortgage payments under a financial repayment plan. Nothing should really change for you.
Here things get a little trickier. Since your ex filed for Chapter 7 bankruptcy, her debt has been discharged and the trustee has been allowed to seize the property—or more specifically, her share of the equity in the property, sell it, and give the proceeds to creditors. In some cases, such a sale is untenable because the co-signer’s equity is too great. Either way, she’s off the hook for the debt, but the lien on the house is alive and well. Lenders have every right to come after you if you don’t make the payments yourself if you were a co-signer on the loan.
Doesn’t the Divorce Cut Me Out of Her Financial Woes?
Unfortunately, even if your divorce decree explicitly states that your ex is responsible for the mortgage, the lender was not a party to the divorce, so anything in that document is non-binding. The divorce agreement is between the two spouses; the loan agreement is between the signatories and the lending institution. So even though she’s cleared of responsibility for the debt through the Chapter 7 filing, you are not.
Can I Deduct from Child or Spousal Support Payments to Pay the Loan?
The short answer is no—for the same reasons listed above. Your obligations per your divorce agreement remain intact, meaning you cannot skirt them without penalty. That agreement lives outside of your agreement with the mortgage company. On the upside, if it’s your spouse who is paying support to you, her bankruptcy will not discharge her of that obligation.
Your Credit Report
Your credit report is completely independent of your ex’s. However, if a creditor comes after you for payment on debt that is co-signed by you, and you fail to pay up, it could affect your credit report. That makes it very important that you keep an eye on your report and check in periodically to see if any negative fallout is coming your way.
At the Law Office of Juila Kefalinos, our Miami bankruptcy attorneys deal with the complex issues related to bankruptcy every day. If you are facing problems you never anticipated, contact us to see what we can do to help. Schedule a confidential consultation in our office today.