Divorce and Bankruptcy

About half of all marriages end in Divorce. The question is whether  the couple should file a joint bankruptcy before or during the Divorce  proceeding. There is no doubt that emotions run high and parties  frequently have animosity towards each other. But if the couple can put  aside their differences, bankruptcy can make things less painful.

First  of all, married couples can file a joint bankruptcy even if they live  separate and apart. Married couples can file a bankruptcy any time  before a final judgment of divorce is entered.

The analysis should be: Is there too much debt? And, will the debts survive a Divorce?

DIVORCE JUDGMENT

Divorce  judgments frequently allocate assets and the responsibility of marital  debts. Most often one party will assume all of the debts but, of course,  the debts can be divided. The most frequent debts of this type are the  home mortgage or a car loan, but it could also be a joint credit card  bill. The problem is what happens when the spouse given the  responsibility no longer has the ability to pay.

CREDITORS ARE NOT BOUND BY THE DIVORCE JUDGMENT

Here  is a frequent mistake. Even though the divorce decree says one spouse  is responsible for paying a debt, the decree does not bind the creditor.  What do you do when you or your ex-spouse can’t make the payments?  Creditors can pursue either or both of the parties including filing law  suits, damaging credit reports, and obtaining judgments, garnishments,  levies, and attachments.

REMEDIES

The  aggrieved ex-spouse can, of course, file motions in the Divorce court  usually seeking Contempt of Court. This might work or it might not. The  offending party may not have the resources at that time to make  payments. The judge can order payment but the Court itself does not make  the payments. You can still be stuck getting taken to court by the  creditor or getting your credit ruined when you are not supposed to be  responsible for the debt.

CH. 7 BANKRUPTCY AFTER DIVORCE BY THE RESPONSIBLE PARTY

Assume  the ex-spouse who is supposed to make the payments then files a Chapter  7. The debts owed to the creditor are discharged. But the Bankruptcy  Code makes clear that debts and obligations owed to the other party in a  Divorce Judgment are not discharged. For example, a debt to Big Bank of  Main Street is discharged but the Debtor still owes the amounts to  his/her ex-spouse. If both spouses file the Chapter 7 together, there is  no remaining obligation to Big Bank, and both spouses can get a fresh  start free from the risk that the ex-spouse won’t be able to make all  the payments.

CH.13 BANKRUPTCY AFTER DIVORCE BY THE RESPONSIBLE PARTY

While  child support and alimony (maintenance) will not be discharged in a  Chapter 13, Property Settlement agreements such as the requirement to  pay pre-marital debts are dischargeable in a Chapter 13. Notwithstanding  the Divorce Judgment you could still be stuck on the mutual pre-Divorce  debts.

If you are contemplating a  divorce or are in a Divorce proceeding and there are sizable debts, it  makes sense to discuss bankruptcy options with a lawyer experienced in  Consumer Bankruptcy law. Even if there are other issues in the Divorce,  filing a Bankruptcy will likely eliminate the big issue.

Our  law firm has helped many divorcing couples file Bankruptcy whether it  is a Chapter 7 or a Chapter 13. Our consultation is Complimentary and  confidential Divorce lawyers often refer such cases to us to avoid  possible Conflicts of Interest.

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