Imagine the scenario a spouse may face. He or she wants to end the marriage but is the one paying the bills, including the mortgage. The spouse intends to leave the family residence, but the other spouse is unable to pay the mortgage and will let the property go into foreclosure.
It may seem like an extreme case, but it did happen to one woman. She wanted to end her marriage and move from the home she shared with her husband. However, he wasn’t financially secure and told her that he planned to not pay the mortgage and let the lender foreclose. The woman didn’t want her credit damaged and wanted to stop foreclosure before it happened.
She had options. If she was liable for the mortgage payments and had other debts, she could file for Chapter 7 bankruptcy. Chapter 7 eliminates debt for people who can’t repay creditors. After filing for bankruptcy, she could petition for divorce. Of course, there is still a problem with what to do with the house. She could put the house on the market and accept less than what it is worth, which is called a short sale. There could be a sticking point. She needs the husband’s consent to the short sale. If he agrees, she can complete the short sale. If he doesn’t, she has to look at other options to get rid of the house.
Divorce and bankruptcy sometimes go hand-in-hand. Many people with credit issues because of a divorce typically seek the help of a bankruptcy lawyer. A bankruptcy lawyer may be able to help someone going through a divorce come up with a sequential plan of action. The lawyer may also file the bankruptcy petition on the client’s behalf.
Source: Fox Business, “Which should I file first: Divorce or Bankruptcy?”, Justin Harelik, July 10, 2013