How does ex's Chapter 13 affect the others credit report for the mortgage ?

[boomer2298]

Well I am back and just to say I am in great shape after my 13 ended in 2015. My credit score is over 800 and I am actually doing quite well. There is life after BK ! With that said, I have a friend who is getting divorced. He is about to default on his mortgage. He is looking at modification but considering the situation a 13 may be the better option in my opinion. The question she has is how will that affect her credit report (it already has negatively) in the future if he does this? I have never viewed it from this perspective so any help would be great !

[justbroke]

If the soon-to-be ex-spouse is on the mortgage note (loan) for the home, then they have an obligation to pay. While the Chapter 13 co-debtor stay "may" protect the non-filing ex-spouse from certain collection activity, it won't if the debtor spouse surrenders the home. That would leave the non-filing ex-spouse on the hook for the mortgage and that person would need to maintain the payments.

It is no different than in an equitable-distribution State if, under the same conditions, the debtor surrenders the home and the lender file a Motion for Relief from Co-debtor Stay. The bottom line, is always, whether the non-filing spouse has protection under the law (e.g. community property States) or some other protection under the bankruptcy stay. Even in community property States, the non-filings spouse could be subject to collection activity after a divorce.

Divorce and bankruptcy become almost strange bedfellows. To get rid of the marital debt, and perhaps the marital home, it is quite possible that both parties need to file bankruptcy.

[boomer2298]

Thanks, I understand that but how will it look on the soon to be ex's credit record if he only files 13 ?

[justbroke]

As I wrote, it depends. It depends on several factors. Normally a co-debtor is protected in a Chapter 13 automatically. This is known as the co-debytor stay (11 USC 1306). The creditor, however, can file a Motion for Relief from the Co-debtor Stay (RFCS) and pursue the co-debtor. Whether or not a creditor would do that is too fact specific. Initially, upon filing, nothing should happen to the co-debtor's credit reporting at all (since they didn't file bankruptcy). However, the creditor could move for that RFCS and then seek to collect from the co-debtor. If the co-debtor doesn't pay then all normal State non-bankruptcy laws apply since there would be no protection for the co-debtor.

[James2020]

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