The Interplay Between Bankruptcy & Divorce Law in Virginia

by Beverly Bird

Divorce laws vary from jurisdiction to jurisdiction – each state makes its own. Bankruptcy is governed by federal law, however. These rules are the same in every state, so trying to balance a bankruptcy case simultaneously with a divorce raises many of the same issues, whether you live in Virginia or elsewhere.

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Joint Debts

If you and your spouse have a lot of joint debts, bankruptcy won't protect both of you from creditors if only one of you files for bankruptcy. This is the case whether you stay together or divorce. Creditors can pursue either spouse for debts you both contracted for, so if one of you files for Chapter 7 bankruptcy, this leaves the other on the hook for payment. Creditors aren't bound by the terms of your decree, so it doesn't matter which of you is assigned responsibility for the debt when you divorce. If you file for Chapter 13, the automatic stay protects co-debtors, at least during the time of the repayment plan. Creditors can pursue the non-bankrupt spouse for the balance after the Chapter 13 bankruptcy is over if the plan doesn't pay off the debt entirely, however.

Filing for Bankruptcy Together

If most of your debts are joint, you and your spouse can file for bankruptcy together before your divorce is final. The joint filing will cut down on court costs and filing fees. You don't have to live together to file a joint bankruptcy petition, and this accommodates Virginia's only no-fault divorce ground of a one-year separation. The state shortens this to six months if you and your spouse reach a settlement agreement and you have no children, but in either case, it gives you some time to deal with the bankruptcy. Filing jointly for Chapter 7 relieves both of you of responsibility for most of your debts, but if you don't separate before you file for bankruptcy, this can complicate things. You must pass a means test to qualify for Chapter 7, and if you're still living together, the test would include both your incomes and only one set of household expenses. This could result in more disposable income, forcing you into a Chapter 13 repayment plan instead.

Effect on the Divorce Proceeding

If you file for divorce and bankruptcy at the same time, your bankruptcy litigation takes precedence over your divorce case because the former involves federal court while the latter is a state-governed lawsuit. The state court can address issues of alimony or child support because bankruptcy's automatic stay does not affect family support obligations. It can decide custody and visitation issues as well while your bankruptcy is pending. But the state can't rule on property or debt division, at least not without permission from the bankruptcy court. Your marital property is part of your bankruptcy estate, so the federal court has the final word on what happens with your joint debts and property division.

Chapter 13 Considerations

If you file for Chapter 13, your plan to repay your creditors from your disposable income will last three to five years. Because you and your spouse will end up supporting two separate households at some point during this time, it might become difficult to impossible for you to continue making your payments to the trustee as your expenses extend from covering one household to two separate ones. This will probably affect the amount of your disposable income. Speak with an attorney – preferably one who is well-versed in both bankruptcy and divorce law -- to determine whether Chapter 7 bankruptcy might be a better option for you.