Man and woman holding ripped paper with dollar sign

What You Need to Know About Bankruptcy and Divorce

Law Office of Robert L. Firth April 17, 2024

Divorce can be emotionally draining and financially challenging, raising many questions about the implications it might have on your current and future financial health.  

Often, individuals going through a divorce find themselves struggling with debt, pondering the possibility of bankruptcy as a solution. If you're faced with this juncture, we feel for you. We can help you understand the intricate relationship between bankruptcy and divorce. 

During separation, bankruptcy can either be a strategic move to mitigate financial woes or a complication that needs careful navigation. This article aims to shed light on how bankruptcy intersects with divorce proceedings, providing insights that might help you make informed decisions during a difficult life chapter. 

The Intersection of Bankruptcy and Divorce 

Bankruptcy and divorce can significantly impact each other depending on the timing and type of bankruptcy filed. You should not file both at the same time. The order in which you file depends on what would be best for your situation.  

Here are key considerations: 

  • Filing for Bankruptcy Before Divorce: Filing jointly for bankruptcy before the divorce can simplify the division of debt in the divorce proceedings. It might also increase the chances of qualifying for Chapter 7 bankruptcy, allowing for a quicker discharge of joint unsecured debts. However, it’s important to note that this decision could delay the divorce process due to the automatic stay imposed by bankruptcy proceedings. 

  • Filing for Bankruptcy After Divorce: Filing after a divorce means you'll have to handle debts assigned to you in the divorce settlement. If financial circumstances change post-divorce, bankruptcy might be an option to discharge or reorganize individual debts. However, debts related to alimony or child support are not dischargeable in bankruptcy. 

Chapter 7 vs. Chapter 13 in the Context of Divorce

Understanding the difference between Chapter 7 and Chapter 13 bankruptcy becomes especially crucial when navigating a divorce: 

  • Chapter 7 Bankruptcy: This is a quicker process that can discharge most unsecured debts. If both spouses qualify based on their individual or joint income, it might be beneficial to file before divorce to wipe the slate clean for both parties. 

  • Chapter 13 Bankruptcy: Invoking a 3- to 5-year repayment plan, Chapter 13 might be more suitable when a significant amount of marital debt needs to be reorganized. If filed before the divorce, both parties must be committed to the long-term repayment plan, which could complicate the divorce process. 

The Impact on Alimony and Child Support 

If you're considering bankruptcy during or after a divorce, it's important to note that while your other debts might be managed or discharged, your responsibilities toward alimony and child support will remain intact. In fact, filing for bankruptcy could potentially amplify the focus on these obligations since other debts may be reduced or eliminated, ostensibly freeing up funds to fulfill support obligations. 

While bankruptcy can discharge many types of debt, alimony and child support obligations stand as notable exceptions.  

In the eyes of the law, the well-being of children and the financial support of a former spouse take precedence. Both Chapter 7 and Chapter 13 bankruptcy proceedings recognize these obligations as nondischargeable, meaning they cannot be eliminated through bankruptcy.  

Furthermore, bankruptcy proceedings can impact how alimony and child support are treated in terms of prioritization. Under Chapter 13 bankruptcy, these obligations are classified as priority debts. This classification mandates that they must be paid in full through the repayment plan.  

It's also worth noting that attempting to discharge debts related to alimony or child support through bankruptcy can add complexities and potentially draw out litigation, adding to the emotional and financial strain of the divorce process. 

To sum these concepts up: 

  • Under both Chapter 7 and Chapter 13, alimony and child support are considered priority debts and cannot be discharged. 

  • Filing for bankruptcy does not stop ongoing obligations for alimony or child support but may affect past-due payments differently under Chapter 13 reorganization. 

  • The bankruptcy court also closely examines any attempt to discharge debts related to alimony or support obligations, ensuring that filers do not use bankruptcy to unjustly evade these responsibilities. 

The Possible Need for Multiple Attorneys

Anyone going through bankruptcy and divorce at the same time can benefit from specialized legal advice.  

It's not unusual for individuals to engage multiple attorneys—one specializing in bankruptcy and another in family law. This duality of expertise is invaluable because decisions in one area can profoundly impact outcomes in the other.  

For instance, a bankruptcy attorney can provide guidance on how filing might affect joint assets and liabilities, ensuring that bankruptcy proceedings don't inadvertently disadvantage one party in the divorce.  

Conversely, a family law attorney can focus on negotiating divorce terms that consider the impending or ongoing bankruptcy, particularly concerning the division of assets and debt allocation.  

This arrangement, while potentially increasing legal costs, can offer a more comprehensive handling of both matters, ensuring that your financial and personal interests are protected during both proceedings.  

If you already have a divorce attorney that you trust, they can refer you to a bankruptcy lawyer, or vice versa. Consultations with both types of attorneys can help you understand the specific implications for your situation and develop a coordinated strategy that addresses both your immediate and long-term needs. 

Legal and Financial Guidance Is Essential

The intertwining of bankruptcy and divorce law makes it vital to seek advice from legal professionals familiar with both fields. A knowledgeable attorney can provide the guidance you need to evaluate the best course of action, considering the specifics of your financial and personal circumstances. 

The Law Office of Robert L. Firth is dedicated to helping clients throughout Palm Springs, Palm Desert, Desert Hot Springs, Rancho Mirage, and the Coachella Valley area navigate the intersections of bankruptcy and divorce.  

With our knowledge and experience, we aim to provide compassionate legal support that helps you move forward with confidence.  

Facing bankruptcy or divorce is daunting, but you don’t have to do it alone. Contact us for the guidance and representation you deserve during these challenging times.