Bankruptcy and Divorce
The issues of bankruptcy and divorce are more intertwined than many people realize. Financial problems often lead to marital problems, and vice versa. Sorting things out so you can move on with your personal life and get yourself in a sound financial situation can be difficult.
At John T. Turco & Associates in Omaha, our attorneys understand the issues surrounding bankruptcy and divorce. If you are having financial troubles that are caused by or contributing to your divorce, contact us to arrange a free initial consultation with one of our experienced Nebraska and Iowa bankruptcy lawyers.
Dealing With the Financial Impact of Divorce
A marriage is both a family relationship and a financial relationship. When a marriage ends, it typically results in what was once one household becoming two. This may mean that more money is being spent to maintain those households, and no more money is coming in.
Increasingly, married couples cannot afford to get divorced, even though both spouses want to. Our attorneys can explore whether bankruptcy will allow you to get divorced and move on with your life.
Other people move forward with divorce and then find that they are unable to keep up with their new financial obligations. Child support, daycare, attorney’s fees, and other expenses start to get out of control. After divorce, you may start relying on credit cards to handle regular expenses.
An astounding number of bankruptcies can be traced back to a divorce, even one that occurred years earlier. If you’ve been unable to get back on your feet financially since your divorce, filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy may be an option.
Sorting Out You and Your Ex’s Debts
The bankruptcy of one ex-spouse can have surprising effects on the other, even if the divorce has been finalized. You may still be liable for debts that your spouse acquired during your marriage, even if those debts were assigned to him or her in the divorce decree. If your ex files for bankruptcy and has those debts discharged, the creditors may come after you.
Some of these problems can be avoided during the divorce process if the settlement as to property division and spousal support (alimony) is worded properly. If you are going through a divorce where debts are involved, or if you have gotten divorced and are concerned about your ex’s debts, don’t hesitate to contact us for skilled advice.
We can help. Contact us to speak to one of our experienced bankruptcy lawyers or to arrange a free initial consultation. If you cannot come to our Omaha offices, we can consult with you by telephone.
Bankruptcy and Divorce FAQs
Is it best to file bankruptcy before, during, or after a divorce?
A joint Chapter 7 bankruptcy filing, while you’re married, can be a great idea, because it can eliminate qualifying debts such as credit card balances, past-due utility and medical bills, and personal loans. Bankruptcy can also eliminate other debt like an expensive car loan or a home mortgage. Filing only one joint bankruptcy can also reduce court costs and attorneys’ fees. In many cases, filing for Chapter 7 bankruptcy while married makes the entire process smoother and cheaper for divorcing couples.
How does divorce impact a Chapter 7 bankruptcy?
Divorce does not really impact a Chapter 7 bankruptcy nor what happens in Chapter 7. Really, the better question is “How does Chapter 7 impact a divorce proceeding?”
Filing a Chapter 7 can cause delays in a divorce proceeding because the divorce court cannot order a person in bankruptcy to pay certain debts. So, for example, a divorce court couldn’t order a spouse to pay certain credit card bills. Determining whether a debt will be owed or not is the role of the bankruptcy court.
However, if a bankruptcy is filed after a divorce is finalized, then whatever one spouse was ordered to do in the Decree is non-dischargeable, or said another way, the ex-spouse who subsequently files a Chapter 7 cannot erase what the divorce court required them to pay to equalize the debts of the marriage. The divorce court’s Decree stands.
How does divorce impact a Chapter 13 bankruptcy?
This is a complicated question that can have several correct and differing answers. It really needs an analysis of the individual case to give an accurate answer. However, there are some general rules.
First, a Chapter 13 bankruptcy can discharge a true property settlement. Property settlements are different from child support, alimony, or other domestic support obligation, which are often called DSOs. Chapter 13 does not discharge (wipe out) any DSO but can discharge a property settlement (like the responsibility to pay a debt). As a result, Chapter 13 can dramatically affect the divorce.
Second, only a divorce court can determine property rights, not a bankruptcy court. Therefore, if there is an issue of who should get what in a divorce and if a bankruptcy has been filed (Chapter 13 or Chapter 7) then those issues are determined by the divorce court.
Third, a contentious issue in Chapter 13 cases is whether a divorce decree’s wording creates a property settlement or a DSO. There are many times with the decree is not clear. In that situation, only the bankruptcy court can interpret the decree.
Can I file for bankruptcy without my spouse?
Bankruptcy law doesn’t require a married couple to file bankruptcy together, however, your living arrangements do influence whether you should file for a Chapter 7 or Chapter 13 bankruptcy.
If you are married and living together, your spouse’s income and expenses will be considered in your means test while filing Chapter 7 bankruptcy without your spouse.
Is my spouse liable for my business debts?
No, unless your spouse personally obligated themselves to the debt.
What happens if your spouse files for bankruptcy?
If your spouse files a bankruptcy (and you do not), then you will likely get stuck with all debts that were “joint” between the two of you. However, any debts just in your spouse’s name don’t become your debts. And, of course, any debts in your name only will remain that way.
Having your spouse file bankruptcy without you is not always a bad thing; it is frequently a very good thing. Reducing the debt load of your soon to be ex-spouse normally makes life a lot better for both of you, especially when there are dependent children involved.
Don't look at it as your spouse “dumping” debt just on you. Sometimes that is the case, but there are many more factors to consider, and most of the time, it is a win-win situation.
A bankruptcy attorney can help you more fully understand what impact a spouse filing bankruptcy has on you.
Am I responsible for my spouse’s debt if bankruptcy is filed after a divorce?
Yes, if the debt was a “joint” debt to begin with. Otherwise, no.
Can a spouse file Chapter 13 alone?
Yes, one or both spouses may file any bankruptcy together or individually, but to file jointly, you must still be married.
Can a husband and wife file separate bankruptcies?
Can one spouse file Chapter 7 and the other Chapter 13?
Yes. However, if spouses use the same attorney, they should each waive any potential conflict of interest. Sometimes, one spouse doesn’t qualify for a Chapter 7 but the other one does. Yet, each individual spouse should file the type of bankruptcy that is best for them, and that sometimes means filing a different chapter for each spouse.
Can bankruptcy remove my alimony or child support?
No, this is never allowed. But, a Chapter 13 bankruptcy requires that you pay any delinquent alimony or support back through the Plan.
What Is the marital adjustment deduction?
When computing the required bankruptcy Means Test, when only one spouse files, there are frequently times when the non-filing spouse does not contribute all of his or her income to the household, thus reducing the “household income” for the purpose of the Means Test. It is entirely possible that the non-filing spouse has his or her own debts to pay or even if they are just “saving” some of their income, they don’t contribute that amount to the household. Therefore, the determination of “household income” for purposes of the Means Test is sometimes adjusted lower. While this is an entirely appropriate thing to do in many cases, one must be careful not to try and game the system to unreasonably lower the household income.
Your bankruptcy attorney will be able to guide you in this matter.