There is no question that filing bankruptcy can help to simplify your New Jersey divorce. This is because marital debt can create such a big issue on who pays for what and can affect equitable distribution of assets. Bankruptcy can:

  • wipe out the credit card bills, so that each of you can get a fresh economic start as a single person
  • get rid of NJ motor vehicle surcharges, so that you can get a driver's license back. This could make a better job obtainable in order to pay alimony and child support
  • make medical bills go away
  • get you out of an ill-conceived car purchase or lease and into something more affordable

But there is one kind of debt that can linger on way past the bankruptcy discharge and your divorce decree, causing long term problems for distributed marital property: debt that is secured by collateral (i.e. a marital asset).

What Mischief a Secured Creditor Can Make

I'm not talking about the mortgage on the marital home to secure the loan you took out to buy it (or to consolidate previous debt in an equity loan) or a car loan. Those pretty much come with the territory in purchasing those things.  I am talking about something far more insidious and damaging.

The Business Loan

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.

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

So How Do I Prevent Problems with Secured Debt in My Divorce?

If debt is one of the major reasons why you are getting a divorce, and looms large in your efforts to achieve it, then you need to be smart about how you make bankruptcy part of your divorce strategy. You need to consult with a bankruptcy attorney and have him or her work with divorce counsel in crafting a plan that works both to address the debt and preserve the assets that are distributed between you.

If you live in Burlington, Camden, Gloucester, Salem or Cumberland County, are getting divorced and think that bankruptcy should be a part of it, call me right away 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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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.

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