Bankruptcy – We Wrote the Book on It By Ronald C. Sykstus and the Bond and Botes Team of Lawyers
Excerpt from Chapter 14 – “Divorce and Bankruptcy”:
Can I File Bankruptcy on Debts from a Divorce?
By Attorney Amy K. Tanner
Most divorce decrees and marital settlements will address the debts
that exist at the time the parties separate. There is usually some type
of division of the debt. Most couples have debt that turns out to be
his, mine, and ours. The only party the creditor is interested in is the
person who is actually liable on the debt. A creditor does not care if
your divorce decree states that your ex-spouse should pay a debt that is
in your name. The creditor is going to collect against the person who is
named and liable on the debt itself, regardless of what is called a hold-harmless
provision in a divorce decree.
The hold-harmless language is an indemnification provision that
provides for the spouse who was assigned to pay a particular debt to
do so, leaving the other marital party unharmed by the debt itself. The
division of debt can become a real issue in bankruptcy. Even the hold-harmless indemnification can be a contingent debt in a bankruptcy.
§523 of the United States Bankruptcy Code provides that any debt to
a spouse or former spouse that arose during the dissolution of marriage
is non-dischargeable in a Chapter 7 case. Although the spouse who
files for bankruptcy can discharge the debt as to the creditor, he or she
cannot discharge the obligation to hold the former spouse harmless.