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Be careful about taking debt back after bankruptcy and divorce

Did you know that you can use bankruptcy to remove your liability for certain debts, but, if you then file for divorce, you can take that debt back on? This is easy to avoid if you're watching for it, so you don't want to make any mistakes that would immediately put you back in debt after the split.

For instance, maybe you and your spouse opened a credit card account jointly. You owe $20,000 on the card. Before filing for divorce, you decide to proceed with the bankruptcy filing because you need to simplify your financial situation and make life more affordable after the two of you split up and your income is slashed in half.

The bankruptcy filing goes through. You used Chapter 7, so you are no longer liable for the debt. Your credit takes a hit, but you feel free of that burden.

Then you go to divorce court. As part of the agreement, when splitting up property, your spouse wants you to agree to pay off some of what is still owed on that card. If you agree to it -- perhaps so that your spouse will agree to give you some assets that you specifically want during the property division process -- then you're liable for that debt all over again. It doesn't matter that you filed for bankruptcy already. The amount you agree to pay, you have to pay.

Finances can get complicated during a divorce. Slow down, take your time, and really think through everything you agree to in court. Know your options and understand the legal ramifications behind every step in the process.

Source: Bankrate, "Which to file first: Divorce or bankruptcy?," Justin Harelik, accessed Jan. 19, 2017

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