Divorce & Bankruptcy
Bankruptcy can be a complicated process. If you are going through a divorce, the situation can become even more baffling when you add the issues of community debt and separate debt. A divorce will surely affect your bankruptcy and a bankruptcy will surely affect your divorce.
Couples have the option of filing for bankruptcy together or separately. Once the bankruptcy is filed, you will need to list all property and debt whether it is separate or community. Community debt or property is that which was obtained during your marriage, or “the community”, and you and your spouse hold title. Separate property or debt is that which was brought into the marriage.
Community debt is not as easy to discharge as separate debt. This is due to the fact that creditors are not legally bound to a divorce decree. For instance, if a couple has a joint credit card with a balance of $10,000.00 and one spouse is ordered, through the divorce, to pay off this card but files bankruptcy after the divorce is filed, the credit card company may in turn go after the other spouse for the balance remaining.
Other issues may also arise when a bankruptcy filed while couples are going through a divorce. For example, one spouse may have a significant amount of separate property while there is a considerable amount of community debt. The spouse who has more separate property may not wish to be a part of the bankruptcy. The community debts must then be distributed among the parties to align with the bankruptcy. A bankruptcy court also has the power to order divorce proceeding be put on hold until the bankruptcy is discharged or otherwise dismissed. The court can also request property issues be heard in the bankruptcy instead of family court. Although this is rare, it is a possibility.
Common questions arise with regards to bankruptcy after a divorce is final. Because bankruptcy laws are designed to give people a fresh start, it is not possible for you to recover any money you pay towards a debt that is discharged in your spouse’s bankruptcy. However, the bankruptcy can help a judge consider the increased ability of one spouse to pay support or a spouse’s decreased need for support.
It is also important to know that spousal support nor child support may be discharged through filing bankruptcy. Again, the family court judge may take those proceedings into consideration when determining decreased need for support or increased ability to pay.
Divorce and bankruptcy are complex, especially when filed together. If you or your spouse plan to divorce and bankruptcy is a possible issue, consult an experienced lawyer to help you with these issues.