Divorce is seldom easy, but when Chapter 7 Bankruptcy enters the picture – before, during, or after the marital dissolution – careful planning with the help of a bankruptcy lawyer is in order.
Chapter 7 Bankruptcy Before, During, and After Divorce
One of the first questions a bankruptcy lawyer may field from a client is “What happens to me if my spouse files Chapter 7?” or “Should I file for bankruptcy after my divorce is final?” Here are a few clues to finding the best answers to those questions:
1. When Bankruptcy Precedes Divorce
For some, the ideal time to file for Chapter 7 Bankruptcy protection is before any divorce proceedings are initiated. For example, a young working couple with no children and no reason for family support orders may find Chapter 7 the best place to begin.
Under the U.S. Bankruptcy Code, an individual may file a petition without the other spouse. However, the spouses may decide to file a joint petition asking the bankruptcy court to discharge them both of debts beyond their ability to pay. This would give both spouses a fresh start financially while allowing them to keep the exempt property under state or federal law. When the divorce is filed after the bankruptcy discharge, the parties’ debts should, under ordinary circumstances, be minimal. As part of their divorce, the remaining assets and debts are divided as part of the property settlement. Thereafter, they can get on with their new lives, financially and legally independent of each other.
2. When Bankruptcy and Divorce Coincide
Sometimes, the best time to file Chapter 7 is after the divorce has been initiated, but before any property settlement has been finalized by the family court. Out-of-control debts can place a lot of stress on a couple’s marriage and a bankrupt couple who divorce is not unusual. Furthermore, when spouses separate, they often experience a decrease in family income with no corresponding decrease in expenses to offset their new living arrangements. And when there are minor children of the marriage, those expenses can be substantial.
3. When Divorce Is Followed By Bankruptcy
With every dissolution, there is a division of marital assets and debts. Once the debts are divided under the final decree of divorce, the party filing for bankruptcy later can seek a complete discharge of all his or her debts in the Chapter 7 liquidation. Be mindful, though, that Domestic Support Orders for child support and most alimony awards are not dischargeable in bankruptcy. Filing Chapter 7 will not give the obligor a way to escape those family support orders.
Many factors must be carefully considered if divorce and bankruptcy are on a collision course in your life. Talk to a bankruptcy lawyer who can advise you on the best action to take given your unique circumstances.
Melissa Bower is a divorce and family law attorney in Peoria, Arizona. Mrs. Bower is a partner with Stewart Law Group. The firm helps clients navigate the legal complexities of divorce, child custody, child support, spousal support, property division, and child relocation disputes.
