Frequently, divorce causes debt, or financial difficulties lead to a divorce. The stress of dealing with overdue bills and creditors calling can put a strain on any marriage. If you are considering a divorce and have substantial joint debt, you should file bankruptcy before a divorce is final. By doing this, the debt division is either eliminated in the divorce proceeding or simplified. Plus, if the divorce is final and then one spouse decides he or she must file bankruptcy, spousal debts are not dischargeable in chapter 7 bankruptcy as to that ex-spouse.
For example, if a husband and wife have joint credit card debt and they file chapter 7 bankruptcy prior to a divorce becoming final, that debt will be wiped out for both of them. If however, the divorce occurs first and the husband is ordered to pay the joint credit card debt and hold his ex-wife harmless for that debt, his options are limited. If he later needs to file bankruptcy, and he files chapter 7, his ex-wife can still take him back to state court to enforce the divorce decree. This could occur if the creditor pursues the ex-wife. Creditors are not bound by divorce decrees and can pursue the ex-wife regardless of what the decree said regarding liability.
Therefore, if at all possible, those facing both financial trouble and divorce, should consider filing bankruptcy before their divorce. If it is too late and the divorce has already occurred, a debtor in bankruptcy could consider a chapter 13 bankruptcy which does discharge spousal debt.