Divorce and Bankruptcy

  • divorce and bankruptcy

Divorce is one of the leading causes of bankruptcy.  Often times debt problems are part of the stresses leading to the divorce and bankruptcy.  The main issues to be addressed in a divorce are:

1.  Who gets the kids

2.  Who gets the property

3. Who gets the debt

While bankruptcy does not help you decide who gets the kids and the property, it can help ease issues over who gets the debt.

If the parties file joint bankruptcy before their divorce is final, then they can eliminate one of the three things they have to argue about.  While not all debts can be eliminated in a bankruptcy, the debts that can be discharged are no longer a problem for either party, so they do not have to argue over who is supposed to pay the debt.  I say “supposed to”, because frankly just because the divorce court orders one party to pay a debt does not mean they will actually pay the debt.

If both parties do not agree to file a joint bankruptcy, and it does require some cooperation, then care should be taken on when one party will file bankruptcy by themselves.  While a joint bankruptcy before the divorce is the best option, there are reasons why an individual bankruptcy should be filed after the divorce.  First of all, a bankruptcy freezes all collection of debts and also puts the divorce on hold.  Either party can seek permission from the bankruptcy court to allow the divorce to continue while the bankruptcy is pending.

The need for bankruptcy can sometimes be better assessed after the divorce is final.  Keep in mind that if you are liable for a debt, your problems are not over when the divorce court orders your ex-spouse to pay that debt.  If the ex does not pay the debt, the creditor can then collect against you, and you cannot use the divorce court’s order to defend against that collection as you are in fact still liable for the debt.

The divorce court’s order to pay alimony or child support can never be eliminated by bankruptcy, and that often includes attorney fees one party is ordered to pay that were incurred to obtain the child support order.  So, orders to pay people other than your ex can be non-dischargeable if the debt is “in the nature of support”.  A divorce order to just pay non-support debt is not dischargeable in a Chapter 7 bankruptcy but can be eliminated in a 13.  This is one of the reasons why the decision to file an individual bankruptcy should be delayed until the divorce is over, as the divorce decrees orders may make a Chapter 13 more attractive.

If you are talking to a divorce attorney while contemplating divorce, you should also consider talking to a bankruptcy attorney to consider whether a bankruptcy before or after the divorce will be needed and when would be the best time to file that bankruptcy.

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