The Intersection Of Divorce And Bankruptcy
Unfortunately, it is not uncommon for divorce to lead to bankruptcy for one or both spouses. One set of household expenses has been replaced by two and, as a result, there simply is not enough income between the former couple to pay the debts incurred during the marriage.
In addition, there are often new or increased child care expenses and attorneys’ fees and costs incurred in the divorce. Therefore, it is not surprising that divorce is a frequent precursor to bankruptcy.
If bankruptcy is appropriate, important factors to be considered are the timing of a bankruptcy filing (whether it should be before, during or after the divorce is filed) and whether one or both spouses should file. These decisions involve careful planning with an experienced bankruptcy attorney.
Filing for bankruptcy prior to a divorce can eliminate most or all of the marital debt and thereby simplify the issues in the subsequent divorce. Filing sooner rather than later may also be required to prevent repossession or other loss of an asset.
Bankruptcy and divorce are two separate legal proceedings which can clash with each other. Filing for bankruptcy during the divorce can slow down the process. While the bankruptcy is pending, the state divorce court cannot make decisions about your property, unless permission is first obtained from the bankruptcy court.
In addition, the trustee appointed in your bankruptcy will become involved in the divorce case and have a say as to how marital property is divided. No division of marital property can be made without the approval of the bankruptcy court. On the other hand, if there are no assets in the marriage over and above what the parties may retain under the Bankruptcy Code, a bankruptcy filing during the divorce may not be a problem.
Filing for bankruptcy after divorce can result in the bankruptcy trustee carefully scrutinizing the property settlement agreement or divorce decree. If the trustee believes the division of assets was unreasonable, the trustee can seek to undo the division of property in the divorce.
Additionally, only a married couple can file jointly. If you wait until after you are divorced, each spouse would have to file separately. That means two bankruptcy cases instead of one with greater attorneys’ fees and court costs.
Should One or Both Spouses File Bankruptcy?
One spouse can file bankruptcy without the other spouse filing. This would be a good option if most of the marital debts are in the name of only one spouse. If the majority of the debts are in the names of both spouses, you may want to consider jointly filing for bankruptcy.
However, joint filing requires a certain level of cooperation between the spouses. Where only one spouse files for bankruptcy and the marital debts are joint, the non-filing spouse remains liable to the creditors for 100 percent of the joint debt.
How Does Bankruptcy Affect Support and Property Settlement Obligations?
“Domestic support obligations”, which include debts in the nature of alimony, maintenance or support of a spouse, former spouse or child, are not dischargeable in bankruptcy.
Other obligations (not in the nature of support) incurred by a spouse in connection with a property settlement agreement or divorce decree are not dischargeable in Chapter 7 but may be dischargeable in Chapter 13.
The intersection of divorce and bankruptcy can raise a number of complex issues, which is why it is a good idea to consult with an attorney before making any major decisions. To learn more, call my firm, John R.K. Solt, P.C., at 800-724-5702 or fill out this online contact form.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.