It is common in a divorce proceeding that involves a marital home and/or vehicles that a property settlement agreement or final judgment obligating one spouse to pay the mortgage or vehicle note will be a part of the divorce decree. This will constitute a non-dischargeable (can’t be wiped out in a bankruptcy) obligation. BUT, what if, as so often happens, that obligated former spouse fails to pay the debt, the home is foreclosed, or the vehicle repossessed and a deficiency judgment is entered on the balance remaining owed to the mortgage company or the creditor that financed the vehicle?
Example: The wife was awarded the marital home. The divorce decree required her to refinance within two years of the divorce, but it was silent as to who (wife or husband) was responsible for paying the current mortgage. The wife failed to pay the mortgage, the house foreclosed, and a deficiency judgment was entered against the wife AND the husband. The wife filed a bankruptcy to wipe out this debt. He filed a motion requesting an order of non-dischargeability of the wife’s purported obligation to pay the mortgage and deficiency judgment. In other words, he tried to block her ability to wipe this debt out in her bankruptcy – make it “non-dischargeable”. He lost because the divorce decree was silent as to who should bear the burden of any deficiency that may arise as the result of a foreclosure sale of the parties’ former residence. So he then would have the choice to pay the deficiency or file bankruptcy himself to wipe out this debt.
Regardless of which side you may be on in such a scenario, it is key to have your bankruptcy attorney review the wording of your divorce decree to advise you on what can / cannot be wiped out in a bankruptcy filing. And if you are reading this and have not yet finalized your divorce agreements, it is key to always have stated who will be responsible for the current/future note or mortgage, as well as who should bear the burden of a deficiency judgment resulting from any foreclosure or repossession in your divorce decree.