What Happens to Our Family Home if My Ex Files Bankruptcy After Divorce?
Below is an example of a frequently asked question relating to bankruptcy after divorce. Unfortunately, the situation described below occurs all too frequently in post-divorce cases. However, the good news is that by seeking professional advice early in the divorce process, you are often able to minimize the risks of these nightmare situations from happening to you.
To provide the most accurate and in-depth information available, we have asked experienced bankruptcy attorney, Ron Drescher of Drescher & Associates (Baltimore, MD) to weigh-in on the reader question below:
READER QUESTION: “When we divorced, my wife got use and possession of our family home for 18 months before we were obligated to sell. Her lawyer ended up suing her for his legal fees and got a judgment against her. The judgment attached as a lien against the house and needs to be paid in full before we can sell the property. My wife just told me she plans to file bankruptcy. Will her filing bankruptcy after divorce impact my interest in our jointly-held former marital home?”
EXPERT ANSWER: Bankruptcy After Divorce
Your wife did you (and herself) a terrible disservice by waiting until after the divorce to file bankruptcy. While you were married, if you held property jointly with your spouse, that property was protected against claims against either you or claims against your spouse. So, those claims sort of bounced off the property that’s held jointly. That’s called holding property as tenants by the entirety. Only married people can hold property in that way. If there are judgments against you, or judgments against your spouse, the instant you get divorced those judgments will become liens against your interest in the property that is no longer protected by that special way of holding property. That’s why it’s very important to plan your bankruptcy and your divorce depending upon whether or not your creditors have judgments against you.
The upshot: your wife should have filed for bankruptcy before the divorce became final. That way she could have discharged the claim of her lawyer for attorneys’ fees and the lawyer never would have obtained a lien against your home.
In your situation, how this lien may impact you would depend upon a number of other facts. Is there much equity in the house? If so, the trustee in your ex-wife’s bankruptcy will probably want to sell the house to capture that equity, and will be legally able to do that, even if you don’t want him to. If your ex is still living in the house she may be able to strip off the judgment lien, if that makes sense for her to do that.
In other words, there is still a lot of uncertainty (and opportunity!) in this situation. You may end up being able to strike a deal with the trustee in your ex’s bankruptcy and short circuit a lot of pain you may have had in dealing with your ex, depending upon how acrimonious the divorce was. The trustee tends to have much less emotion invested in liquidating assets than a person who has been living in the house.
For more information on bankruptcy after divorce, feel free to check out these videos on my YouTube channel:
- Why Does My Home Have Liens After My Divorce? https://youtu.be/IyazITYbHYs
- Will My Bankruptcy Affect My Spouse? https://youtu.be/Pyr6QQzhGyk
- Bankruptcy: What If I Have An Enemy? https://youtu.be/3-J4dtjmdzU
ABOUT THE AUTHOR:
Ronald J. Drescher has been practicing since 1986 in the areas of business transactions, commercial litigation, loan documentation, bankruptcy, creditors’ rights, and out-of-court workouts. His experience also includes corporate reorganizations, insolvency, business and tax planning.
Ron loves gadgets, golf and good fried chicken. For years he roamed the streets of Baltimore and Los Angeles to find the best 5 star fried chicken he could. When he was in high school he ate piece after piece of chicken at a restaurant called Chicken Unlimited that served all you can eat delicious golden fried chicken. Ron ate so much of their food that the restaurant staff quickly turned off the lights and locked the doors when they saw his red 1977 Chevy Malibu drive into the parking lot.
Disclaimer: The information in this blog post is provided for general educational & informational purposes only. It is not intended to convey legal advice or serve as a substitute for legal counsel on any subject matter.