Financial Challenges Presented by Bankruptcy and Divorce
Unfortunately, the statistics consistently show that financial challenges and disagreements over money make up a large percentage of the reasons why people wind up getting divorced. As a result, I often meet with clients going through a divorce who face issues when resolving how to divide property and debts.
Also, after divorce, the same rules that apply for most of a debtor’s creditors may not apply in a post-divorce situation. In this article, I will address some of the main issues that arise when dealing with a bankruptcy, and a pre or post-divorce situation.
Bankruptcy Automatic Stay
One of the biggest differences between divorce litigation and other litigation where you may be facing foreclosure or a credit card complaint, is that the Bankruptcy Automatic Stay (which generally stops all litigation) does not apply in a divorce action.
Therefore, if you have an enforcement motion scheduled for child support, or a trial in a matrimonial matter and you file a bankruptcy petition, the Automatic Stay does not apply and will not stop that action from going forward.
[Whereas, the filing of a bankruptcy petition will stop a foreclosure or credit card judgment from being entered].
Debts of the Marriage
Another area in the pre-divorce arena that relates to bankruptcy is negotiating who is responsible for the debts of the marriage. Typically, I see in a property settlement agreement that one of the parties assumed all of the credit card debts, or may have received the house with an agreement that this person would also make the mortgage payments.
After the divorce, that individual is unable to meet those financial burdens and decides to give up the house and discharge the credit card debt. The problem that arises is that if both parties were on the credit cards and mortgage, even if one party assumed the responsibility as it relates to their spouse, it does not change the relationship that the two parties had with their credit card and mortgage companies.
Therefore, if the party that assumed the responsibility files bankruptcy and discharges his responsibility for those obligations, the creditor can then pursue the other spouse.
Judgement Against Spouse
If a judgment is entered against the other spouse, then that spouse can pursue the former spouse to be indemnified or made whole from the credit card judgment. As you can see, it is very important that this issue be addressed in the property settlement agreement so that it will [or possibly will not depending on your position] allow a party to discharge debt in bankruptcy.
Child Support and Alimony not Dischargeable
Finally, another big difference between post-divorce matters and other creditors is that back child support and alimony are not dischargeable in bankruptcy. Therefore, if your child support or alimony payment is too onerous because of a change in circumstances, you can’t discharge the amount that has already accrued. You can only modify your future payment amount due to changed circumstances in state court (not bankruptcy court).
In sum, when it comes to pre or post-divorce planning that involves significant financial debt, it is important to have your family law attorney work with a bankruptcy attorney to properly plan for your financial future.
Contact a Bankruptcy Attorney
If you have a situation as we described in this article and have questions or concerns, please don’t hesitate to contact us to answer your bankruptcy legal questions.
Martella Law Firm
18501 Murdock Circle, Suite 304
Port Charlotte, FL 33948