As many New Jersey residents may know, no matter how amicable the parties are during the process, divorce proceedings are difficult. Even the most calm of spouses can feel stress over discussions of child custody, financial payments and the division of assets. This pressure may feel even heavier when the proceedings take place in the midst of a Chapter 7 bankruptcy.
One of the biggest issues involves the mortgage. Many couples sign the property deed even when only one of them is on the loan. The problem occurs when the divorce intermingles with the Chapter 7 bankruptcy. Though a spouse may relinquish ownership of the house by removing their name from the deed, it doesn’t flow down to the mortgage. In other words, the original owner of the property loan remains even after the bankruptcy is discharged.
This circumstance doesn’t mean the loan owner is responsible for the continued payment of a property he or she no longer owns. The filing and subsequent discharge of the bankruptcy removes the liability of payment from the requester. If the former spouse keeps the loan in good standing, the non-liability continues. The name of the bankruptcy requester can be removed when the current property owner refinances the loan or sells the property.
New Jersey residents may wish to consult a law firm that deals with bankruptcy to help sift through all the confusion. They may not be able to reduce payments or shorten the discharge period, but these law firms will do the best they can to separate what is needed for both the divorce and bankruptcy proceedings to give their clients a better idea of their future economic impact. In the end, just sitting down with bankruptcy lawyers may help reduce the pressure.
Source: Fox Business, “How Does Divorce Affect Bankruptcy and Mortgage?“, Justin Harelik, July 03, 2013