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How a Creditor Lien Can Screw Up Your NJ Divorce Even After Filing Bankruptcy

There is no question that filing bankruptcy can help to simplify your New Jersey divorce in that it can wipe out marital debt. You no longer have to worry about who is responsible for paying the credit card bills. NJ motor vehicle surcharges can be wiped out so that one spouse can get a driver's license back, so a better job is obtainable in order to pay alimony and child support.

But when it comes to secured debt (money owed where the creditor has a lien on marital property to secure payment) the debt melody can linger on way past the end of the bankruptcy.

What Mischief Can Liens Make?

What happens when one spouse takes out a loan and offers a marital asset, like a home or a vehicle, as collateral? The loan is only in the name of that one spouse, but there is a secured lien on the asset. This can create a problem when it comes time for the equitable distribution of the assets.

For example, let's say you took out a loan or line of credit for your business and offered your home as collateral. Everything is fine until your wife files for divorce and wants the house. You file for bankruptcy (because maybe the business isn't doing so well and you are broke), but the mortgage lien is still there.

If you just deed the property over to her in the divorce, she could end up having to pay the loan (or lose the house) because the lien travels with the land. You could sell it so she can get her equity, but then your wife doesn't get the house.

Even simpler, what if your wife gets the car in the divorce, giving up something else in return? But you took out the loan, and the lien survives your bankruptcy. You can't make the payments, the car gets repossessed, and you are facing one very angry ex!

You need to have a good bankruptcy strategy in place that works hand in glove with your divorce strategy on equitable distribution.

So What Do I Do?

If you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

If you are looking for more information on how bankruptcy might help you with your divorce, then you should download my free book, Top Questions Divorcing Couples Ask About NJ Bankruptcy.

If you have more general questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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