Bankruptcy

NO, Getting a Divorce Won't Help Keep Your Spouse out of Bankruptcy!

By Joseph McDaniel, Esq.

It is remarkably common, these days, for me to listen like a Priest to tales of Solitary Sin; people run off to casinos, buy funky drugs, embezzle, charge insane amounts on credit cards, spend money on girlfriends/boyfriends/pets, buy stock or property in highly leveraged ways which go wrong, or otherwise act in naughty ways. And then the Bill Comes Due.

The Sinner in these matters, to do them justice, always wants to avoid two things: the ongoing hatred of their spouse, and the economic consequences that will certainly fall upon them personally.

So one of the ways that naturally and inevitably pops into their heads is the ol' pre-bankruptcy divorce strategy.

For the Sinner, the advantage in pitching the strategy is that they get to be seen trying their best to minimize the impact of the economic sins on their Innocent Spouse(tm).

Sadly, it doesn't work worth a darn.

This is a community property state. There are about twenty c.p. states, and all of them have laws that differ slightly from each other.

That's just to keep us on our toes.

Note that Bankruptcy Law is Federal Law and is mostly uniform all over the United States. Note that domestic relations law and property law is mostly state law, and is wildly different across the United States.

Hence the fun.

Don't even get me started on what happens when people move from one state to another, or another country to the U.S., and then want to file a Chapter 7 or Chapter 13 or Chapter 11 bankruptcy. The 2005 amendments were designed to make that less predictable, more difficult and more dangerous. But that's what the 2005 amendments do to the entire body of bankruptcy law, of course.

But back to the badboy and the Innocent Spouse; or the badgirl and the I. Spouse.

Since this is a community property state, there is a strong, and very nearly overwhelming, presumption that a debt that arose during the marriage is a community debt.

So if one spouse files, and another spouse doesn't, whether they got divorced first or not, the non-filing spouse is gonna get sued, assuming that the debts in question were incurred during the period of the marriage.

Maybe the non-filing spouse can defend the first lawsuit.

But litigation is expensive. If you think the legal fees for a bankruptcy went up after the 2005 amendments, you're right. They doubled and then some, for very good reasons.

But litigation is expensive.

But even if the non-bankruptcy filing spouse can defend one of the lawsuits brought by creditors after her guilty, guilty, guilty spouse files, she's gonna get sued by multiple creditors, virtually guaranteed.

And here's another actually, factual guarantee from me to you: litigation is not only expensive, it's unpredictable. I've worked for three Judges, and all three were smarter than they had a right to be, and even having the inside track, predicting the outcome of a trial was dicey.

Believe me when I tell you that you won't know the outcome of a trial until the dust settles.

So think about this. If litigation is extremely expensive, and hard to predict as to outcome, are you doing a non-filing spouse a favor by exposing him to a bundle of expensive, unpredictable lawsuits?

Or putting it a way that I heard in a movie, do you feel lucky?

On the other, other hand, sometimes a divorce prior to a bankruptcy filing makes perfect sense. Seldom, but sometimes.

Just so you know, cases that look like eazy-peezy no-brainer bankruptcy cases often have remarkably complex legal issues contained within them; the only reason that they can often be dealt with in the context of bankruptcy is that, normally, everybody gets run over by an economic reality truck, and the complex legal issues get run over by a discharge and the closing of the bankruptcy case.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on July 02, 2010 (boomark / email).