If your ex-spouse files a bankruptcy case, it is possible for it to impact you even though you are divorced. This is especially true if you still have loans in both of your names, regardless of what the divorce decree says about who is responsible to pay them. Your ex-spouse’s Chapter 7 or Chapter 13 case does not eliminate all liability to repay the loans.
If your ex-spouse files a Chapter 13, you may be protected by the co-debtor stay. Otherwise, as soon as your spouse is protected by the automatic stay, the lender will likely expect you to start making the loan payments on the jointly-held debts. Lenders are not bound by the provisions of your divorce decree. If your name is still on the loan documents, you are still personally liable.
If a debt is secured by collateral that you do not want to keep and pay the outstanding balance, you should consider surrendering the collateral back to the creditor. However, before you do so, it is important to understand if the lender will accept the surrender as payment in full or if you will still be obligated to pay the deficiency balance. You must also understand that surrendering collateral will negatively impact your credit score.
If you want to keep possession of the asset pledged as collateral and repay the loan, be sure to verify that the creditor will continue to report your payments to the credit reporting agencies. Many creditors stop all reporting as soon as a bankruptcy notation appears on the account. However, in order for you to continue to improve your credit score, you will need to have your payments reported.
If you are considering filing for bankruptcy protection or you need assistance with your student loans, call DeLadurantey Law Office, LLC, at (414) 377-0518. We believe that each client should receive the individual attention necessary to reach their financial goals. Recognizing the needs of working clients, we maintain a flexible schedule and offer evening appointments. Initial consultations are always free, and phone inquiries are always welcomed. Find us on the Internet and on Facebook.