Filing for Bankruptcy Can Get an Ex off of a Loan

Paying for a car that your ex is driving can get old quickly. So can being on the mortgage of a home you haven't lived in since a divorce. If you're ready to sever financial ties, filing for bankruptcy can help wipe out old debt so you can move on with your life. Find out about your options in and outside of bankruptcy.

Ways to Get Someone off of a Loan

You can ask the lender to take you or your ex off the account. However, it's unlikely to work. Most banks won't voluntarily remove an individual from a loan because it's in the lender's best interest to keep as many people—and incomes—tied to the debt as possible.

Another option is to refinance the loan. But many people don't have sufficient credit to do so. If you've run out of ways to untangle yourself from a loan you're not benefiting from, filing for bankruptcy might be your answer.

How Bankruptcy Can Get You off of a Loan

Bankruptcy can be a great tool when a relationship goes south because it eliminates many types of debts couples share during a relationship. For example, bankruptcy will wipe out or "discharge" the following:

• mortgages
• car payments
• credit card balances
• utility bills, and
• gym memberships.

The person who files for bankruptcy and receives a debt discharge (the order that wipes out debt) will no longer be responsible for paying the debt. So if you want off of the loan, chances are you can make that happen by filing for bankruptcy.

If you want to get your ex off a loan you'd like to keep, you'll have to convince your ex to file the bankruptcy case (more below in "What This Approach Won't Do").

What Will Happen to the Home or Car

Bankruptcy is an effective way to discharge a loan secured by property, such as a mortgage or auto payment. If you—or your ex—want to know whether your ex can keep the house or car, the answer will depend on whether your ex is legally responsible (an obligor) for paying the loan.

• You're both obligors. If you're jointly on the loan, the lender will remove you, and your ex will remain responsible for the balance. Your ex can retain the house or car if the payment remains current (unless you have an unusual term in your loan agreement). You'll want to indicate that you intend to surrender the property in your bankruptcy paperwork.
• You're the only obligor. If you're the only party responsible for a car loan or mortgage and discharge your liability in bankruptcy, your ex won't be able to keep the property, even if she's driving it or living in it. You'll likely want to indicate that you intend to surrender the property in your paperwork, and if it's a vehicle, it's a good idea to provide information about the vehicle's location so the lender can arrange to pick it up.

Choosing the Bankruptcy Type

Filing for Chapter 7 bankruptcy will be the most streamlined way to remove your liability from a loan. Qualifying debt gets wiped out in about four months, and you won't need to pay your creditors through a repayment plan.

You can achieve the same goal by filing for Chapter 13 bankruptcy, but you'll have to complete a three- to five-year repayment plan.

What This Approach Won't Do

Removing a former relationship partner from a loan you're both responsible for can be trickier. Why? Because in most cases, your bankruptcy filing will eliminate your liability only—not your ex's responsibility. So unless your ex will agree to file for bankruptcy, you'll likely have to explore other options.

Also, you should know that bankruptcy won't wipe out your responsibility to pay particular debts under a marital separation agreement entered into in family court. However, you can wipe out marital property division payments in a Chapter 13 bankruptcy.

Meet With a Lawyer

If you want to explore ways your filing might wipe out an ex's obligation, or if you're facing a family law-related problem, consult a local bankruptcy attorney with experience in family law issues.