By Cara O'Neill, Esq.
1. The Typical Situation
It is unfortunate when relationships grow apart, but it happens, and when it does, property must be divided. If neither party wants to retain the home purchased together, the decision is an easy one; sell the house.
The problem arises, however, when one partner wants to stay in the home while the other wants a clean break without the burden of remaining on the mortgage. That’s when the question “How do I get out of a joint mortgage” surfaces. Fortunately, there are two effective ways to get out of a joint mortgage without the consent of the lender.
Refinancing is the obvious answer and most people know that a party can be removed from the loan through refinancing. Often, however, refinancing is not an option because one partner does not have sufficient income to qualify. That’s when the second, less known option should be considered.
A Chapter 7 bankruptcy will not affect the status of a home when the mortgage payments are current. The partner who does not want to remain on the mortgage files bankruptcy and states his or her intent not to retain the home. The result will be that the filing party’s liability on the mortgage will be discharged while the non-filing partner retains the home. Once complete, a quit claim deed takes the filing partner off title.
Of course, it may be difficult to purchase another home for at least two years after filing bankruptcy, but if waiting is not a problem, and if the filing party qualifies for a Chapter 7 bankruptcy, this method effectively takes care of the problem for both partners.
4. Other Considerations
Filing for both bankruptcy and divorce has serious financial consequences that should be thoroughly considered before proceeding forward. There are circumstances when both parties should file together before filing for a divorce and times when it is in the best interests of one or both partners to file separately. Given the complexity of the related issues are well beyond the scope of this article, it is wise to seek legal counsel before finalizing an overall separation plan.