Bankruptcy And Divorce

Broken heart on string

If both spouses are amicable and are able to work together, they should both file for bankruptcy before getting divorced.

Oftentimes couples who are going through the divorce process are in financial trouble before they even consider filing for bankruptcy. Many others are living on budgets that are stretched to the limit by high debt payments, and the stress of creating two households out of one is enough to put them over the edge. Others may find it impossible to pay support payments and continue to service their debts. Whatever the reason, many divorce clients could benefit from filing bankruptcy. 

How Will Filing Bankruptcy Impact The Divorce Proceedings?

Filing for bankruptcy should not have any impact on the divorce proceeding. Although we recommend waiting until after divorcing to file for bankruptcy it is not required. The reason being is that the automatic stay no longer applies to most domestic actions. In fact, it only applies to the dissolution of marriage proceedings in the limited area of determining the division of property and debts. Thus, it does not apply to proceedings that:

  1. Establish paternity;
  2. Establish or modify an order for alimony, maintenance, or support;
  3. Determine child custody or visitation;
  4. Dissolve the marriage;
  5. issue orders regarding domestic violence
  6. Collect alimony, maintenance, or support from property that is not the property of the estate;
  7. Withhold income that is property of the estate for payment of alimony, maintenance, or support;
  8. Suspend a professional, occupational, recreational, or driver's license under State law;
  9. Report overdue support
  10. Intercept a tax refund;
  11. Enforce a medical obligation under Title IV of the Social Security Act.

In practice, state court judges may err on the side of caution and continue to require an Order from the Bankruptcy Court lifting the stay before proceeding. Obtaining such an order is easy, painless, and cheap. A bankruptcy attorney would merely need to file a Motion for Relief from the Automatic Stay with the Bankruptcy Court and the order is generally granted the same day.

How Will Filing Bankruptcy Affect My Soon To Be Ex Spouse's Debt Obligations?

  1. "Domestic Support Obligations" are not dischargeable in bankruptcy. "A domestic support obligation or "DSO" is money owed to a spouse, former spouse, child, or child's parent in the form of alimony, maintenance, and support, including child support. Domestic support obligations are considered a priority debt and cannot be discharged." Learn more here.
  2. "Non-Support Domestic Obligations" are not dischargeable in Chapter 7 but are dischargeable in Chapter 13.
  3. If your soon-to-be ex-spouse is not willing to join you in a bankruptcy filing, then the ex-spouse will remain fully liable for all "marital debt". 
  4. If your soon-to-be ex-spouse consents to file bankruptcy with you and if you are eligible for a Chapter 7 filing, then you can both receive a discharge of your unsecured debts. If you are not eligible for a Chapter 7 or if you chose to file a Chapter 13 to keep certain property, then there are various options available with regard to who will make the Chapter 13 payment. The payment could be paid by one spouse alone or by both spouses in varying percentages. In such cases, who pays what amount of the Chapter 13 payment would be an issue both spouses will need to address during the divorce settlement. Learn more about the different types of bankruptcy here.

As you can see if both spouses are amicable and are able to work together, they should both file for bankruptcy jointly before getting divorced. By filing together this ensures that all the marital debt is taken care of so both parties can have a fresh financial start after the divorce. Additionally, if you file together you only need to pay one filing fee and one set of attorney fees. However, filing together requires a certain level of cooperation between the spouses that is not common amongst divorcing couples. If the parties cannot get along it is best to wait to file until after the divorce is complete. Although each party will need to pay a separate filing fee and set of attorney fees, generally this can be the easiest route because neither spouse will have to interact with the other throughout the bankruptcy proceeding.

Want to know more about bankruptcy in general? Click here.