Divorce and bankruptcy

Yes, you should read this if you are getting divorced, or are considering it, and you and your spouse have so much debt together that you cannot pay it or are having a very hard time paying it.

*You should also talk to a lawyer. Divorce and bankruptcy can be complicated and have serious consequences. This is a general overview only.

You will learn how bankruptcy generally works, whether you should file together (called jointly) with your spouse or separately, and whether your spouse can use bankruptcy to get out of paying what they owe you.

Some people who cannot pay their debts file for bankruptcy. This places your finances under the bankruptcy court's control. The court decides which debts to pay first, and which to discharge (dismiss). If the court discharges a debt, a creditor can never collect on (recover) that debt. You are no longer responsible for it.

It may depend on the type of bankruptcy. Talk to a lawyer. See contact info below.

It is a delay or short-term freeze on legal obligations that happens during a bankruptcy case. If one or both of you files for bankruptcy, the stay immediately stops anyone you owe (called your "creditors") from collecting on most debts.

The automatic stay does not:

• Stop your divorce. It only interferes to determine how to divide property. The superior court finalizes your divorce first. The bankruptcy court finalizes the bankruptcy and property division later.

• Apply to spousal support (called maintenance) or child support. A spouse filing for bankruptcy must keep making any court-ordered maintenance or child support payments.

If you have a lot of debt together, you can file for bankruptcy before filing for divorce. Bankruptcy can discharge some debt and make it easier for you to negotiate dividing the rest of the debts between yourselves.

Yes. You do not have to live together or even have any real contact with your spouse to file jointly. It can be cheaper to file a joint bankruptcy instead of each of you filing separately.

But even for a joint filing, you each may need your own lawyer. What is good for one spouse may not be good for both.

Maybe not. When one or both spouses file for bankruptcy, all the property you own together (called the "community property") is available to pay community debts.

If your ex files for bankruptcy after your divorce, you will still be responsible for community debts your spouse cannot pay. You may have less community property then to pay them.

The wording of your divorce decree and settlement could matter in the bankruptcy. Get legal advice during your divorce to help you plan for the effects of bankruptcy on your divorce settlement.

Maybe. Your ex cannot stop paying "domestic support obligations" like alimony and child support. Expenses like mortgage payments and health insurance may be domestic support obligations.

If your ex files for bankruptcy and gets behind on support, you must file a proof of claim (form B-410) with the bankruptcy court to claim the back support.  The form is at uscourts.gov/forms/bankruptcy-forms.

For other payments, it depends. Chapter 7 will not discharge non-support obligations from a divorce or separation. Chapter 13 will discharge some debts arising from property settlements that are not dischargeable in Chapter 7.

Quickly file any objections to discharge when you get the notice of bankruptcy.

The bankruptcy petition should list you as a creditor. The bankruptcy trustee should give you notice of the initial meeting of creditors (called a 341 meeting) and your deadline for filing a claim.

Even if you do not get notice, if you know your ex is petitioning for bankruptcy, you should file a claim to protect yourself. Talk to a lawyer.

You may have to repay certain debts and then seek compensation from your spouse.

Example:  You have $1,000 in credit card debt where you and your spouse both co-signed on the card. In your divorce decree, your spouse agreed to pay back $1,000 in credit card debt. You agreed not to be responsible for the debt (held harmless).  

Your spouse discharges the debt in Chapter 7 bankruptcy. The credit card company cannot go after your spouse. But they can go after you. If they do, you must repay the debt. And then, under the hold harmless provision of your divorce decree, you can sue your spouse to reimburse you for the $1,000 debt you paid the creditor.

However, if your spouse discharges the debt in Chapter 13 and the credit card company later goes after you, you probably cannot sue your spouse.  But you can ask the divorce court to raise the amount of support you get because your financial circumstances have changed and you are now responsible for more debt.