Bankruptcy

What Happens When Bankrutpcy & Divorce Intersect?

By meaghano

Sometimes, one traumatic life event causes another ? as when a serious illness, injury or divorce pushes you to file for bankruptcy.

Bankruptcy after divorce can be tricky to understand, largely because both involve complex legal systems. Here are the basics of what happens in a bankruptcy after a divorce:

No Joint Filing after Divorce
Once you and your spouse are legally divorced, you no longer have the option of filing a joint bankruptcy petition. But, depending on which chapter of bankruptcy you choose, one spouse?s filing could still affect the other.

Division of Debts and Assets
As you probably know, divorces usually involve a division of marital property and debts between the divorcing parties. Depending on the laws in your state, you and your spouse will take responsibility for various debts and possession of various belongings.

The Chapter 7 Discharge
The bankruptcy court does not always recognize the designations of the divorce court, though. If one spouse files for Chapter 7 bankruptcy and receives a discharge for a debt that was jointly held during the marriage, creditors may have legal recourse to collect that debt from the other spouse.

The Chapter 13 Repayment Plan
The Chapter 13 repayment plan often allows bankruptcy filers to protect cosigners (and co-debtors) who have not filed a bankruptcy petition. Because many debts are eventually repaid in Chapter 13 bankruptcy, the likelihood that the other spouse would have to take on responsibility for a debt is typically lower in Chapter 13.

But Keep in Mind…
Although bankruptcy offers financial relief for many types of debt, some debt cannot be discharged by the bankruptcy court, such as:

? Alimony/spousal maintenance
? Child support
? Most student loans
? Most tax debt
? DUI & other criminal penalties and fines

If you?re worried about being able to afford child support and/or alimony payments (for example, because of a recent reduction in your income), you may be better off consulting with your divorce attorney about modifying the terms of your divorce than filing for bankruptcy.

However, bankruptcy can offer you relief by excusing you from other, less essential debts and thus freeing up more of your money to put toward the maintenance of your children and former spouse.

As always, consider seeking legal counsel before proceeding with bankruptcy, either before or after a divorce case.

Full post as published by The Bankruptcy Blog on May 04, 2009 (boomark / email).