What happens to co-owned property in bankruptcy?

My wife asked for a divorce. We own a house together with both our names on the papers. She is living in the house and paying the mortgage. Now she has said that she is considering filing for bankruptcy. I don’t want to have a bankruptcy; what can I do?

Asked on July 6, 2012 under Bankruptcy Law, Kentucky

Answers:

B.H.F., Member, Texas State Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

The property you are talking about would be considered exempt property during a bankruptcy.  This means that she's not likely to lose the house because it's protected as a homestead.  If she has the house and is struggling to make the mortgage payments, then her late pays will affect your credit history because your name is on the mortgage too.  If the bankruptcy helps discharge other debt so that she can more easily make these payments, then it will be a plus for you, because she will be able to make those payments. 

You also mention that you don't want to have a bankruptcy.  You do not have to file for bankruptcy with her, even if you are still married.  But the both of you and your attorneys may want to visit about the timing of the bankruptcy.  Timing can affect a bankruptcy filing.  For example, she will consider to have more assets and income while you are married, which could affect the type of bankruptcy she qualifies for.  Depending on the circumstances, both of you would probably be better off if she filed after the divorce and after the assets were clearly divided.  This will make any dispositions in the bankruptcy much smooth and a lot more convenient for you. On the flip side, if there is a lot of debt hanging over both of you, then getting it discharged before the divorce is done may help you more after the divorce.  These decisions are very fact specific and should be discussed with a bankruptcy and family law attorney.  You have an opportunity for you both to get a fresh start if you make a coordinated plan.


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