How to Deal with Divorce Debt in Bankruptcy

November 12, 2019 | By Steffens Law Office
How to Deal with Divorce Debt in Bankruptcy

The bankruptcy/divorce interplay is a frequent issue in Nebraska bankruptcy law. You will need to have a basic understanding of several issues before you can achieve your desired result in both your divorce and your bankruptcy.

First, determine which creditors can legally collect from you.

Medical services received by one's children, or during the marriage by a spouse, are debts on which the medical provider (creditor) can hold both spouses responsible. Creditors can also pursue both "joint loan" borrowers and both joint credit card owners regardless of who is ordered to pay the debt in a divorce decree.

Second, determine whether your divorce decree prohibits the discharge of the debt.

When only one spouse files a Chapter 7 Bankruptcy and the creditor can hold the other, non-bankruptcy filing spouse responsible for that debt, the issue becomes whether the divorce decree has ordered, or will order, the spouse filing bankruptcy to pay part of the joint marital debt. If the decree orders you to pay a debt, when the creditor pursues your x-spouse (because you filed bankruptcy), your former spouse could return to divorce court asking the Judge to find you in contempt for not following the decree. By the way, your x would probably win that battle.

Your bankruptcy lawyer needs to review your divorce decree before you file bankruptcy. Joint marital debt ordered paid by a divorce decree is called "property settlement debt", and it is not dischargeable in a Chapter 7 bankruptcy. In other words, the person filing bankruptcy has an obligation to the former spouse to pay the creditor, and a Chapter 7 will not eliminate that obligation to the former spouse.

Third, if necessary, consider a Chapter 13 Bankruptcy.

Property settlement debt owed to a former spouse is dischargeable in a Chapter 13 bankruptcy. However, we estimate that it costs at least $4,000 more to file a Chapter 13 Bankruptcy as opposed to the Chapter 7. Because of the extra cost, you will need to think this through. If your divorce-ordered share of the joint debt (credit card, loan, medical debt, etc.) from the prior marriage is less than $4,000, you would be money ahead by filing the Chapter 7, and paying the property settlement debt (if necessary).

We recommend that you obtain your THREE credit reports from, and you should review the debt ordered to be paid by the divorce decree, to determine the amount of the joint debts at issue in your situation.

Please review this report with your divorce lawyer, if you have one. We want you to make an informed decision about filing bankruptcy. Give us a call at (308) 872-8327 to review your particular circumstances and to prepare a plan to move forward.