Divorce and Bankruptcy Q&As
May 15, 2017
Here are straight answers to some of the most important questions about bankruptcy dealing with divorce.
Q: If you and your spouse are considering getting divorced, can you both still file a bankruptcy together?
A: Yes, any couple who are legally married you can file a joint bankruptcy—a single case filed together. But whether you should do so is not so simple. Sometimes it’s a smart step. For example, it may be a sensible way to clear away your debts before the divorce. But other times it could be a big disaster, because of personal conflicts and the legal conflicts of interest involved.
Before making any decisions along these lines, as impractical as it may seem, you and your soon-to-be ex-spouse should EACH get thorough advice from different lawyers about whether filing together is in BOTH of your best interests.
Q: If you are still legally married, can ONE of the spouses file bankruptcy alone before the divorce. Can one of them do so without the other’s cooperation? Or can there be an agreement that one of the two files bankruptcy to clear away marital debt when most of the debt is in one spouse’s name?
A: Either spouse can file bankruptcy alone even if they are married. That one person can do so independently or as part of an agreement between them.
If your intention is to clear away all or most of the marital debt because it is solely in that person’s name, be extremely careful about making that assumption. The non-filing spouse may well be legally liable on many more debts than he or she expected. Just because you think a debt is only in one person’s name that may not be legally accurate. This is especially true in community property states, but can be everywhere.
Again, never make this decision without both spouses getting independent legal advice about it. This means each of you discussing your own situation with your separate lawyer looking out for your separate, individual interests. Do this even if both spouses are being honest and fair with each other; all the more so if there is any chance they are not.
Q: What if you and your spouse have already filed a joint bankruptcy case within the last few years? If you are now get a divorce, will that affect when either of you can file a new bankruptcy case?
A: No. The rules about filing a new bankruptcy case after having filed a previous one turns merely on what kind of case—Chapter 7, 11, 12, or 13—you filed earlier, and what kind of case you intend to file now. The fact that the prior case was filed jointly does not affect when you can file individually. Find out from a competent bankruptcy lawyer when you will be able to do so.
Two cautions about this. First, verify that you both were legally named as a debtor in the previous case. Second, the previous case must have resulted in a discharge (legal write-off) of your debts. Essentially you must have completed the case successfully, or else you don’t have to wait any period of time. Most likely you will know whether you were legally named as a debt and whether you got a debt discharge. But people can make mistakes about these, which can totally change what you can do. So be sure to verify these both with your lawyer.
Q: If you and your spouse are now in an ongoing Chapter 13 “adjustment of debts” case, can you both, or can just one of you, get out of it?
A: Yes, there are various ways that one or both of you can get out of your joint Chapter 13 case.
The entire case can almost always simply be dismissed, for any sensible reason. But that leaves all or most of the debts still owed. So from there each person can then decide what is best for him or her. That might be a new Chapter 13 case, or instead Chapter 7 “straight bankruptcy” case. Or in rare cases one or the other person no longer needs bankruptcy relief.
Or your joint Chapter case can be converted into a joint Chapter 7 case. With an upcoming divorce the original purpose of the Chapter 13 case may have ended. The joint Chapter 7 case would likely get your bankruptcy over with quickly and still get you a discharge of most if not all of your debts.
Or your joint Chapter 13 case can be “severed” into two separate Chapter 13 ones. Then each of you could independently do whatever you want to do with your new separate case. For example, you could amend your own case to address your own new circumstances, convert it into a Chapter 7 case, or dismiss it altogether.
Q: What happens if one of you files a separate bankruptcy case after the divorce case has been filed in court?
A: Some parts of the divorce case would be stopped by the bankruptcy filing, at least temporarily. That’s because of the “automatic stay” imposed by the bankruptcy filing that stops the collection of most debts. But other parts of the divorce case could continue on unaffected.
Specifically, the parts that would continue are determinations about child and spousal support, the enforcement of ongoing support, matters involving child custody visitation, paternity, and domestic violence, as well as the actual dissolution of the marriage other than the division of property and debts. It’s that crucial part of a divorce involving the division of property/debts that would be “stayed” by the bankruptcy filing.
Our next few blogs will get more into these and related issues.