In 2011, California has more than 240,000 consumer bankruptcy filings which account for approximately 17 percent of the filings nationwide. While a bankruptcy allows a person to reorganize and/or discharge personal debts, the bankruptcy taints the filer’s credit score and remains on the credit report for up to ten years. If your former spouse files for bankruptcy after a divorce judgment–your credit score can still be affected if you are also a joint debtor on any of the debts included in the bankruptcy petition. For example, if a community debt in joint name is assigned to your husband in a divorce case and he subsequently defaulted and filed for bankruptcy protection, your credit score will also be affected. Thus, for the purpose of protecting your credit score after a divorce, you should immediately cancel or close all joint credit cards or accounts. At a minimum, you should remove your name from any account or loan held jointly with your former husband or wife after your divorce finalized. Further, in negotiating and drafting a divorce decree, it is important to include an “indemnification clause” if you are assigning a joint debt to the other spouse. The indemnification clause provides that if one spouse defaults on the debt assigned to him or her, he or she will have to pay the damages and fees the other spouse incur as a result of the default. Because you generally cannot trust your former spouse to stay current on a joint debt, the safest course of action to protect your credit score is to get rid of any debt held in both names before the divorce finalized or assume the debt in exchange for other community assets.
If your husband or wife files for bankruptcy protection before your divorce case is finalized, this filing prompts an automatic stay on your divorce case. The automatic stay put your divorce matter on pause until the bankruptcy case is dismissed or discharged. Thus, other than on the issue of child and spousal support, the family law court will be without power to make any ruling in your divorce case until the bankruptcy case is over.
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Disclaimer: Regal Law & Mediation, APC and their attorney do not assume any responsibility for the accuracy or timeliness of any information provided herein. The information contained herein is for informational purposes only and is not legal advice or a substitute for legal counsel. Online readers should not act upon this information without seeking professional legal help specific to their case.