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Divorce and Bankruptcy: Who Takes the Debt?

On Behalf of | Feb 10, 2023 | Bankruptcy

Financial issues are one of the leading causes of divorce for married couples in Michigan. If you have accrued a significant amount of debt during your marriage, you and your spouse may fight about your financial obligations.

Especially when one of you has caused or accumulated more of that debt than the other, there may be resentment about the financial burden that the whole family has to absorb because of one person’s actions. As you find yourself preparing for divorce, you may also find yourself considering bankruptcy because of your debt.

Who will end up with which debts during the property division process in your Michigan divorce?

Property division requires an equitable approach

The Michigan rules for dividing your property, assets and debts require a fair or equitable approach. You must determine which debts and belongings are marital and then determine the fairest way to divide those assets and financial responsibilities. Even does not always equate to fair, especially if one spouse is responsible for significantly more of the debt or earns far more income than the other.

You and your spouse have the option of dividing your debts amicably with one another or asking a judge to divide them based on your circumstances. In either scenario, you could still be vulnerable regarding certain debts if your ex files for bankruptcy.

Family court orders do not end your responsibility

If you are a cosigner on a credit card that a family law judge orders your spouse to pay, you are still on the hook for that debt until they fully pay off the account. If they file for bankruptcy or fall behind on payments, the lender could come after you despite the family court order saying that your ex-spouse is the one responsible for that debt.

You may also need to consider bankruptcy if your ex files. Unless you have the resources to cover the debts that you shared during the marriage, the lenders could initiate collection efforts against you. Unless you take steps to protect yourself, you could face lawsuits from creditors that your ex should have paid in full.

Sometimes, it is a good idea to file for bankruptcy by one or both spouses prior to filing for divorce.  This may eliminate the need to divide your combined debts in a divorce settlement.

Learning more about how Michigan handles marital property will help those facing bankruptcy as a result of their spouse or ex choosing to file.