Bankruptcy and Divorce
Bankruptcy and divorce often coincide with one another. The divorcing couple will have to decide if they want to file bankruptcy together or apart. There are pros and cons to either decision. Generally a married couple can file bankruptcy together; however the courts do not care if they are living separately. However both people’s income and assets will be used to determine if either a chapter 7 or chapter 13 bankruptcy can be filed. In addition if the couple files together they will only need to pay one court filing fee and can be represented by the same attorney for one fee. If instead the couple divorces and then files, they each must file their own bankruptcy case with their own attorney. This increases the cost of actually filing for bankruptcy for each individual.
If however you decide to divorce before filing for bankruptcy, the bankruptcy may not be able to be filed for a long time. Divorce proceeding can take time to finish because of division of marital property, such as houses, businesses, or bank accounts. If the divorcing couple has dependent children the issue of child support must be dealt with before the divorce is finalized. Some states allow spousal support or alimony and that legal issue has to be arranged before the divorce is final. Each person will have to file their own bankruptcy case with the court and have separate attorneys to represent them during the bankruptcy proceedings.
Bankruptcy will not discharge certain types of debt. Spousal support, child support, or alimony payments will not be discharged during bankruptcy. Property settlements from the divorce may or may not be dischargeable depending which chapter the bankruptcy case is filed under. Besides of support obligations, other debts incurred by the debtor in the course of a divorce or settlement proceeding might be dischargeable in a chapter 13 bankruptcy case. Even though the divorce decree titles something as support it might not be support in the bankruptcy proceeding and even though the divorce decree does not specify an obligation as support it might be nonetheless non-dischargeable in either chapter. If a non-filing spouse has a claim against the filing ex-spouse, it might be necessary in a chapter 13 bankruptcy case to file a claim with the court if the support payment is being paid by the trustee.
If one person files bankruptcy and includes joint debt, the other ex-spouse is still liable for the debt. This is also true even if the divorce decree or settlement agreement states that the filing spouse is responsible for paying the debt. The responsibility for the filing spouse to the ex-spouse and the creditor might be eliminated in a chapter 13 bankruptcy case. The non-filing spouse would be left with paying the joint debt. However, the non-filing spouse might be able to modify the divorce decree or settlement agreement. For example if both individuals names were on credit cards, mortgage documents, lease agreements, or other types of debts; then creditors can legally demand payment. In some cases during divorce proceedings debts are listed and the person responsible for paying is clarified as part of the divorce decree.