Bankruptcy and Your Divorce

  • By:Karpenski & Schmelkin

Bankruptcy and Divorce

It can be a stressful process when couples are divorcing even under the best of circumstances. When other factors are thrown into the process, such as one party filing or wanting to file bankruptcy, it can make things more complicated.

Most often individuals consider filing for bankruptcy when they can no longer pay his/her outstanding debts.  A bankruptcy filing may discharge some if not all of an individual’s debt.

There are different types of bankruptcy filings, the most commonly used in connection with divorce are Ch. 7 (unsecured consumer debt – credit card charges, personal loans, utility bills, medical bills, etc.) and Ch. 13 (for individuals with regular income to develop a plan to repay all or part of their debts).  Similarly, bankruptcy can be filed jointly (i.e. marital debt) or individually. If you and or your spouse are contemplating filing for divorce and bankruptcy, there are several options and important facts to be aware of.

In most cases, the bankruptcy proceeding will take precedence over the divorce proceeding. Filing for bankruptcy during a divorce may delay the distribution of assets and liabilities until the bankruptcy is completed. In other words, you may have to finish your bankruptcy before your divorce can be finished, due in large part because the bankruptcy can affect how debts are treated in your divorce.

If, however, bankruptcy is filed prior to divorce, a predetermination of marital debt distribution can be made.  A caveat, there is a possibility that one spouse may be held solely responsible for a joint debt if not included in an individual bankruptcy filing.

Bankruptcy Because of Debt and Failure to Pay

Although individual facts and circumstances will determine how bankruptcy is filed in any given situation, you need to be careful.  If during your divorce proceeding, you and your spouse agreed to share marital debt, you could each be responsible for the entire debt.

For example, if your ex files for bankruptcy after your divorce is final, the financial burden of joint debt repayment could fall on your shoulders. In this scenario, you could be responsible for paying off all joint debt independent of your current marital status.

Considering Child Support and Alimony

Regardless of the type or way bankruptcy is filed, there are certain debts that are outright non-dischargeable in bankruptcy, and they include child support and alimony. It could, however, affect the amount of child support and/or alimony if your former spouse seeks a modification. Be sure to check with your lawyer to see the best legal options available to you.

Cooperation and Legal Representation

Divorce and bankruptcy can mean a new start for you, your ex, and your families.

The Court has broad discretion in dividing marital debt. If you are contemplating divorce and bankruptcy, you need an experienced divorce practitioner who will best protect and represent your interests.  For exceptional assistance, contact the knowledgeable and experienced attorneys at Karpenski & Schmelkin Divorce and Family Law Attorneys.

Posted in: Divorce