What happens to joint assets and finances if one spouse is filing bankruptcy when separated?
This is a complicated situation and it is further complicated by the fact that the laws that pertain to this situation differ significantly from state to state.
Your mother-in-law may well wish to consider fling for a divorce in order to protect her interest in any property she jointly owns with her husband.
If there is an outstanding mortgage on the home, canceling the homeowners insurance would be a violation of the terms of the mortgage and could result, in a worst case situation, in the bank holding the mortgage beginning foreclosure procedures on the property.
The amount of protection a homeowner can get if he or she is sued for outstanding debts or declares bankruptcy is known as a "Homestead declaration" and varies significantly from state to state. Additional protection might be available if your state is one of the twenty-five states that permit Tenancies by the Entirety, which is a way that married people may own the title to their home that also protects the value of the home from the claims of creditors.
Since the situation is so complicated and depends on what state your parents live in, I urge you to have your mother-in-law contact a lawyer as soon as possible to make sure that her rights are protected.
