Responsibility for Debts

• A judge will determine who is responsible for debt payments in a divorce. Debts are often divided between the two parties, or one party may assume liability for most of the debt as that party may earn the most income. Since the creditors are not part of the bankruptcy action, a joint debtors' obligation to the creditor cannot be changed by an order of the divorce court. In other words, just because the judge says a person is not responsible for payment of a debt, the creditor will still hold him responsible if he agreed to pay originally.
  
  

Division of Assets

• A divorce court also divides marital assets between the divorcing couple. This division may require that the couple sell their home or other assets to make an equal division. A problem with this is that if the divorce judge forces a sale of the home before the bankruptcy is complete, the couple may lose any homestead exemptions and could be forced to surrender the proceeds to the creditors in the bankruptcy, as they now have cash and not a home. Furthermore, in a bankruptcy, all of the marital assets are under the control of the bankruptcy trustee, and a divorce judge may not have the authority to force a sale under these circumstances.
  
  

Discharging Debt

• A bankruptcy is the only court order that will eliminate either one of the divorcing spouse's obligation to pay his debts. If the bankruptcy discharge comes after the divorce, the divorce decree still may require that person to pay the bill if only one party files for bankruptcy. For example, a husband may be ordered to pay $10,000 in credit card debt on a particular joint account. The husband then discharges his obligation in the bankruptcy. The credit card company cannot collect from the husband and tries to collect from the wife. The husband could be held in contempt of court for failure to follow the court order to pay the debt.
  
  

Best Practice

• The best way to handle a bankruptcy and divorce, particularly when both spouses are filing for bankruptcy, may be to complete the bankruptcy discharge first, before filing for divorce. This will allow the couple to discharge their joint debts and surrender nonexempt assets together, and then proceed to the divorce to divide any assets left over. Both people in the marriage should seek their own legal advice to handle this complicated matter carefully.