Why You May End Up Declaring Bankruptcy During a Divorce ...

It really comes down to two simple words. Joint debts.
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In many relationships, couples link their finances. They take out joint home loans and car loans. They offer personal guarantees on the debts of their spouse, be it a personal loan or a credit card. While romance blossoms and both partners are employed, this precarious situation doesn?t cause too much of a problem. But it can certainly inflame when a relationship breaks down.

With one in two marriages ending in divorce in Australia, it?s something we sadly all need to be prepared for.

A common scenario is for one spouse to be unable or unwilling to keep up their payments on a joint debt. Perhaps they can no longer afford to when they?re living alone or relying on their own reduced wage. Or perhaps they?re choosing to be vindictive.

Whatever the cause, if you have a joint debt, the bank will pursue you for the full amount if your former partner defaults. This is one of the most common triggers for people declaring bankruptcy following a divorce. It can seem especially unfair if your credit rating was fine and you were more than able and willing to keep up your half of the joint debt. In our experience of bankruptcy (Australia wide), this is a common scenario.

So what can you do to protect yourself from bankruptcy?

Firstly, avoid becoming a guarantor on anybody?s debts, including your partner?s. This in turn comes down to you both living within your means during the relationship and not trying to buy anything on credit that necessitates another person going guarantor.

Perhaps that means taking out a smaller loan or credit card or shopping around for a better deal. In general, avoid joint debts wherever possible. The only situation where you might compromise on this (out of necessity) is your home loan. And even here, make sure you have a sufficient savings to protect yourself should you need to cover additional payments while a property settlement is being arranged. Look into your options for loan protection as well.

A divorce and grief over a loved one that has passed are widely ranked as two of the most stressful experiences a person can undergo. If you are in the midst of a divorce, you don?t need the prospect of declaring bankruptcy weighing on you as well.

The best way to protect yourself is to only sign up for your own debts and make sure you have a reserve fund in place for any joint debts you do need to be a part of.

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Source: http://business.ezinemark.com/why-you-may-end-up-declaring-bankruptcy-during-a-divorce-proceeding-7d33fbc8e825.html

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