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Does filing for Chapter 7 help in a divorce dispute?

Residents of Massachusetts know that a divorce can cause a serious financial headache. One problem that might arise is with respect to house payments and the possibility of foreclosure. In many divorce cases, one spouse might agree to make payments on the family's home as part of a divorce settlement but then fail to do so.

If the other party has his or her name on the mortgage, the failure of the first party to pay will put the other at risk of collection efforts and a lower credit score. Some therefore have wondered whether a Chapter 7 bankruptcy might be the other party's solution to create what amounts to a mortgage modification and therefore avoid responsibility for the home loan.

In reality, while a Chapter 7 will effectively absolve the aggrieved spouse from any personal debt on the mortgage, it does not stop the bank from pursuing a foreclosure in order to take the mortgaged home and sell it to satisfy the outstanding debt. More importantly for the aggrieved spouse, it does not stop the bank from reporting that foreclosure on both parties' credit.

Every case is different, but one can surmise that getting a loan in the immediate future may be difficult for a person who has a both a bankruptcy and a foreclosure on his or her credit report.

One should also remember that while a bankruptcy can protect a person from third party creditors, it will not necessarily excuse that person from his or her obligations under a divorce decree. A divorced person filing for bankruptcy should review his or her decree carefully and make sure that he or she understands how a bankruptcy will affect any outstanding obligations to his or her spouse.

Source: foxbusiness.com, "File bankruptcy to get off mortgage with ex?" Justin Herelick, Jan. 8, 2013

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