Important Information about Bankruptcy and Divorce Proceedings

Over the course of a lifetime, people often experience events that can alter their lives in both positive and negative ways. When it comes to personal finances, events like job loss, death of a loved one, and divorce can seriously impact a person's financial status and future. In some cases, financial troubles may precede a divorce and may be the root cause of a couple's marital problems, while others may face difficulty following a divorce.

People who are facing serious financial troubles may find themselves unable to repay debts like credit cards, auto loans, and mortgage loans. If the problem becomes so severe that the individual is forced to miss monthly payments and is delinquent on important debts, he or she may face seriously negative consequences like repossession of assets and foreclosure on homes. Fortunately, there are many legal options individuals can take to discharge harmful debts or save their homes from foreclosure, including debt negotiation, mortgage modification, or bankruptcy.

When it comes to divorce and bankruptcy, it is important to note that the assets and debts of a couple can be seriously affected by bankruptcy proceedings. The Arizona bankruptcy attorneys of the Harmon Law Office would like to provide you with the following information about divorce and bankruptcy to help you better understand the law and how it is applied to the proceedings.

Shared Property and Divorce

For couples who have significant debts and have serious financial complications to go along with the divorce proceeding, bankruptcy may be able to help simplify the process of dividing assets and debt between the two individuals. Some people may choose to file for joint-bankruptcy to make sure that harmful debts are discharged and remaining liabilities are divided.

When it comes to property and assets owned by the couple, the bankruptcy process can be difficult. Regardless of whether both persons file for bankruptcy or if only one person pursues legal protection, community property is usually considered to be part of the bankruptcy estate. This means that any property that was acquired over the course of the marriage may be liquidated to repay creditors.

Shared property may include:

• Common or jointly-owned property including homes and land
• Property acquired before the marriage but intended for common use or benefit of both spouses
• Earned income during the course of the marriage
• Family property like furniture, vehicles, appliances, and other items

Property that is often considered to be separate from divorce proceedings often include:

• Gifts and inheritance for one individual
• Family heirlooms
• Property protected by a family trust
• Property used principally for a business
• Property acquired before the marriage or relationship

It is important for individuals to consult an experienced Arizona bankruptcy attorney to discuss specifics about shared property and bankruptcy proceedings.

Property Liens and Indemnity Clauses

In some cases, a spouse may decide to protect himself or herself from another spouse's bankruptcy filing by placing a lien against property owned by the other spouse or including an indemnity clause in the divorce paperwork. By taking such action, one spouse may be able to claim the property as payment for debts owed by the other person or make sure that he or she is not held liable for certain debts.

Property liens may be secured to back up debts that one spouse owes another. In the event that the individual files for bankruptcy, the former spouse may have claim to the property as a means of satisfying the debt owed.

Indemnity clauses are also commonly referred to as “hold harmless” clauses that may specify that one spouse will be fully responsible for debts if creditors seek action for repayment. Such clauses are often included in the divorce proceedings and both parties should be aware that they exist.

If you have questions about how divorce proceedings can affect the bankruptcy process or need assistance with a bankruptcy case, contact the Arizona bankruptcy lawyers of the Harmon Law office at 480-829-0494.