Couples at the Crossroads of Bankruptcy and Divorce

January 13, 2012

Unfortunately, it is not uncommon for couples to confront the issues of bankruptcy and divorce simultaneously. Often, challenging financial times lead to strained marriages, or spouses who have separated find it difficult to financially support two households. Couples dealing with both bankruptcy and divorce likely feel overwhelmed with all the issues needing resolution.

If you are facing both bankruptcy and divorce, you may be unsure which court filing to do first. The answer depends on a variety of factors based on a couple's unique situation. A bankruptcy attorney who also practices in the area of family law and divorce can provide advice about the most advantageous filing order for a particular couple, but some general issues to consider are discussed below.

Which Proceeding Should Come First?

In many cases, it is best to file for bankruptcy prior to filing for divorce. This allows you to pay only one joint filing fee, and have a better sense of which debts will be eliminated and which will need to be dealt with during the divorce proceeding.

Filing for bankruptcy jointly does require spouses to cooperate to a certain extent, so if you and your spouse find communication challenging, it may be better to file separately. You may file separately for bankruptcy at any time.

If a couple is considering filing for Chapter 7 bankruptcy, both incomes will be factored into the means test, unless you have already separated and are residing in separate households. Therefore, if the combined income is too high to qualify for chapter 7, it may be better to wait and file for bankruptcy after you separate.

If you are in the midst of divorce proceedings when you file for bankruptcy, the property division and financial support aspect of the divorce will be placed on hold, unless special permission is granted by the bankruptcy court (commonly known as relief from the automatic stay) for this aspect of the case to move forward. This happens because there is an automatic stay imposed in bankruptcy proceedings. Issues such as child custody and visitation, however, may still be decided while the bankruptcy case is pending.

Liability for Debts After a Divorce

When a divorce is finalized, debts are divided among the spouses in the divorce settlement or by the Court, and ex-spouses can no longer file for bankruptcy together. The terms of the final divorce are binding only between the parties getting divorced and not on their creditors. Therefore, if one ex-spouse neglects to pay on a debt they are supposed to or files for bankruptcy, the creditor may potentially look to the other ex-spouse for payment.

Therefore, it is important that a lawyer who is well versed in bankruptcy as well as family law assist you in protecting yourself from this situation. For instance, a lien may be placed on the property of your ex spouse, or an indemnity clause may be included in the Marital Settlement Agreement to seek repayment from your ex which will "survive" bankruptcy.

Child support and alimony or spousal support are not dischargeable in a bankruptcy proceeding, so ex-spouses will continue to remain liable for these obligations.

The complexities of filing for both divorce and bankruptcy make the advice of a knowledgeable attorney in both areas extremely valuable. Such an attorney can guide you through the entire process and work to help ensure your interests are protected.

Article provided by Rosen & Winig PA
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