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An Overview
It seems that Divorce and Bankruptcy seem to go together. The bottom line is that two individuals can live more efficiently together then they can apart . Unfortunately, when two individuals split, their expenses go up; however, their income normally does not increase enough to off set the additional expenses. Additionally, there are attorney's fees and court fees as well. If the divorce is pursued to completion, it is not uncommon for one or both of the individuals involved filing a bankruptcy. Ironically, had the bankruptcy been pursued prior to the divorce proceedings, the marriage may have been saved, as there would be less financial stress on both individuals. A minister told me over 20 years ago, couples get married because they are in love and when they fight you can normally "boil to down to two issue! Sex or Money!" A financial reorganization won't directly resolve the former, but it will help the latter. Once the latter is resolved, maybe the couple can work out the former.
Bankruptcies Effect
For those facing or involved in divorce, a bankruptcy generally presents three possible issues:
• Who is liable for the debts?
• Who owns the assets?
• Who owes support and when is it available?
Filing Together
Generally , it is recommended that both individuals file prior to completing the divorce. The benefits are three fold: 1) it simplifies the bankruptcy and divorce; 2) it limits the support, property settlement and "liability to others" issues; and there is a large savings on attorney's fees and filing fees. Additionally, filing together leaves more money available for on going expenses and family obligations such as support and maintenance.
Individual Filing
When only one spouse files, many times the divorce/family laws and bankruptcy laws collide. When this happens, both the plaintiff and the defendant, as well as, the divorce/family courts and bankruptcy court, must sift through the wreckage. There are possible additional repercussions in a community asset state. The filing of one spouse may put additional pressure on the other spouse, which the divorce/family court judge may shift back to the other spouse. Although one spouse can file and discharge the non-priority unsecured debt as to them personally, if there is an indemnity agreement (usually part of the divorce), that spouse can be forced to still continue paying the discharged creditor by the state court. Additionally, the non-filing spouse can bring an adversary proceeding alleging that the debt is not dischargeable because the payment of the debt is a form of non-dischargeable support.
Family Law and Bankruptcy Questions and Answers
Can my ex-spouse avoid paying support by filing bankruptcy?
Answer : No. The "automatic stay" pursuant to 11 USC 362 applies to the collection of debt; however, child support and maintenance are an exception to the automatic stay.
The result of a petition for modification of support if my ex-spouse files a bankruptcy?
Answer: A family court can continue to hear and decide issues relating to support regardless of the filing of a bankruptcy. Some judges may require an order from the bankruptcy court before they wish to proceed. Should you become involved in such proceeding, you should get immediate advise from an experienced bankruptcy attorney.
If my ex-spouse filed a bankruptcy, does that effect support deducted from his or her wages?
Answer: It would be extremely unusual for an ex-spouse's employer to even receive notice of a bankruptcy filing to even consider changing a court ordered wage deduction. Additionally, most orders (especially in Chapter 13) would specifically except application to a support type order.
How does bankruptcy effect enforcement of martial settlement agreements?
Answer: The bankruptcy code recently made non-support obligations created in a connection with a divorce or separation non-dischargeable in a Chapter 7 if discharge of the obligation would harm the non-debtor spouse more then it would benefit the debtor. 11 USC 523(a) 15. Unlike support obligations, which are non-dischargeable without the necessity of action on the part of the recipient spouse, these martial separation obligations survive the bankruptcy only if the non-debtor spouse files a timely action to except them from the discharge. Thus, if a adversary proceeding is not timely filed, these obligations are discharged. In other words, if you "snooze, you lose". Therefore, if you find yourself in this situation, you should contact an experienced bankruptcy attorney immediately.
What is the effect of an ex-spouse or soon to be ex-spouse listing me on the bankruptcy schedules for the amount he owes me?
Answer: The listing of a creditor on the debtor's bankruptcy schedules does not automatically deem the creditors claim dischargeable. It should be duly noted that a debtor is required to list all debts on the bankruptcy schedules even if the debts are acknowledged to be non-dischargeable. In a proceeding determine the dischargeability of a debt, one must consider the nature of the debt and the legal status of the parties. If you are an ex-spouse or soon to be ex-spouse, and you find out directly from the court or "through the grapevine" or family or friends that you have been listed by your ex-spouse's or soon to be ex-spouse's bankruptcy petition and schedules, you should immediately contact an experienced bankruptcy attorney to determine your rights.
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