Financial issues are one of the leading causes of divorce, so it makes sense that those experiencing divorce may also find themselves going through bankruptcy. Bankruptcy and divorce each come with their own complex legal proceedings. If you are planning to file for bankruptcy and are currently separated or planning to get divorced, it is crucial to work with an experienced bankruptcy attorney to ensure you are protecting your financial interests. Here is what you should know about filing for bankruptcy before, during, and after divorce.
Filing for Bankruptcy Before Divorce
If you file for bankruptcy before getting divorced, anything resolved in the bankruptcy case will no longer factor into the divorce case. So if you discharged debts, walked away from property, or agreed to a debt repayment plan, those issues will not be re-litigated in divorce court. Instead, a family court judge will consider this settled and agreed upon by both parties.
If you filed for Chapter 13 bankruptcy and now have monthly debt payments, this debt will factor into your divorce—but only the bankruptcy repayment, not the underlying debt. Your divorce agreement must determine who is responsible for this debt repayment and who owes what towards these payments.
Filing for Bankruptcy During Divorce
Filing for bankruptcy will put your divorce litigation case on hold with the state until the bankruptcy judge allows the case to proceed. If you try to discharge your debt under Chapter 7 bankruptcy in the middle of your divorce case, this debt can still factor into your divorce agreement. For example, you want to file Chapter 7 bankruptcy to discharge your debts. You are willing to lose your home to use the equity to pay back creditors. Your spouse, however, is not and wants their share of the home value. In this example, you would be litigating this issue in bankruptcy court and divorce court at the same time.
A divorce court will look at what is equitable for both parties. For example, suppose one party is filing for bankruptcy to eliminate debt. That debt could still factor into the divorce court's estimation of what is considered a fair and equal division of assets, debts, and property. A "win" in bankruptcy court will not necessarily translate to a "win" in divorce court.
Filing for Bankruptcy After Divorce
Filing for bankruptcy after divorce will not change the outcome of your divorce agreement. Your alimony payment will not change, your child support payment will not change, and you will still be responsible for any equitable distribution payments the court has ordered. So, for example, if you owe your spouse payment for their share of some property you were able to keep in the divorce (the house, a car, etc.), you will likely not be able to discharge this debt. And even if you are, your former spouse can take you back to divorce court for redress.
Since a divorce court is concerned with equity, even if you can get some divorce court distributions discharged, a divorce court will find another way to ensure all parties in the divorce are equally and fairly compensated.
The best time to file for bankruptcy is before divorce proceedings even begin. Filing for bankruptcy together can be an even better idea. Filing together can help set you up for a smoother divorce since many of your financials will already be settled. Filing for bankruptcy during divorce can unnecessarily complicate your legal proceedings. Deciding to file for bankruptcy after divorce has its own added challenges. Veitengruber Law can help you determine what the best path forward is for you. Divorce and bankruptcy are difficult and stressful—you don't have to do it alone.