All kinds of financial situations can crop up after a divorce, especially if you leave loose ends undone. One of the biggest financial controversies between two adults who divorce is over the mortgage of the home. How will an ex-spouse’s bankruptcy affect you if you had a joint mortgage?
Even though you have a divorce decree saying who gets what, there are legal implications that must be dealt with in a mortgage contract before any transfer of ownership passes. Mortgage contracts are very legal documents, and there is a process called “closing” that must occur before the documents of title can be transferred. If you mix a bankruptcy court in with the process of a divorce adding an unresolved mortgage contract, you will have a recipe for a potentially legal entangled mess.
A spouse not getting the mortgaged home in a divorce decree, but still having their name attached to the title, can suddenly find there self being pursued by a collection department representing the mortgage company. If you have not legally transferred title, the mortgage company has every legal right to go after both signing parties of the mortgage documents.
Even if you present a divorce decree to the mortgage company stating you are no longer the owner of the property, you will most likely be included in any foreclosure on the property until you legally transfer the title. A mortgage company might feel like they have no other legal recourse than to deal with the entities they made the contract with in the beginning.
One of the things that can stop the collection actions of a mortgage company is for either party of the divorce to file a bankruptcy. The moment you file a bankruptcy, a judge will order all collection actions to cease, an important feature called the automatic stay. The automatic stay, applicable to all types of bankruptcy filings, means that the mere request for bankruptcy protection automatically stops and brings to a cessation certain lawsuits, foreclosures, utility shut-offs, evictions, repossessions, garnishments, attachments, and debt collection harassment.
During the time of the bankruptcy process, both spouses of the mortgage contract will be protected against any further actions of the mortgage company’s collection department by the automatic stay, but when the bankruptcy process is finished, the mortgage company can potentially begin the foreclosure process again.
A foreclosure might have an effect on both of the signing spouses. Upon foreclosing, the mortgage company can potentially seize the property, report to credit agencies both spouses are in default, and hold the non-filing spouse responsible for any monetary deficiencies they might lose on the sale of the home. The filing spouse will most likely have had his or her deficiencies discharged in the bankruptcy process.
What all this means to a non-filing spouse is that you can be sued for the deficiencies, or the deficiencies can become tax liabilities not protected by bankruptcy discharge. A bankruptcy lawyer is one of the few who might be able to help you legally untangle such a mess.
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