Bankruptcy During Divorce Proceedings

By Tom Streissguth

Filing for bankruptcy before a divorce has been finalized will complicate the divorce settlement. While state law governs divorce, bankruptcy is a federal procedure that shields the petitioner(s) from some, but not all, of the debts incurred during and before the marriage. If you are considering a bankruptcy before a family law court finalizes a marital settlement agreement, you will have to carefully consider the division of property and the assignment of debts between you and your spouse, as well as the obligation of each of you to settle with creditors after the marriage ends.

Bankruptcy Filing

The law allows individuals or couples to request either chapter 7 or chapter 13 bankruptcy protection. In the former, unsecured debts are discharged and property that is not exempt is seized for the repayment of secured creditors. In chapter 13, the court sets a repayment schedule so that the debtors can pay back a percentage of the debts to all creditors. The marital settlement agreement that finalizes the divorce must set out the future obligation of each spouse in a chapter 13 proceeding.

Community Property

If you file bankruptcy before the divorce is final, you remain married for the purposes of the bankruptcy case. The bankruptcy protects community property – anything you bought during the marriage -- from seizure by unsecured creditors, which includes credit-card companies and personal lenders that did not secure their loans with your property. Whether you file bankruptcy as an individual or as a couple, the bankruptcy estate includes all community property listed on the bankruptcy petition. If you are separated, and your spouse unexpectedly files for bankruptcy protection, you must find out if an individual debt was listed as community property. Community property states consider both spouses responsible for all debts contracted by either spouse during the marriage including such individual debts as student loans. These states include Alaska, Arizona, California, Louisiana, Idaho, Nevada, New Mexico, Texas, Washington and Wisconsin. The other states consider debts contracted by an individual as that individual's sole responsibility, even if the individual is married. However, if a spouse cosigns a private student loan for her spouse, she can still be held responsible for that loan.

Divorce is never easy, but we can help. Learn More

Support Payments

If you file bankruptcy during a divorce, you cannot discharge any child support or alimony amounts set by the divorce court when your divorce becomes final. The bankruptcy does not prevent a family court from ordering support payments. Those amounts will remain obligations of the spouse ordered to pay the support. Nor can you discharge student loans or federal and state taxes. Any federally guaranteed student loans as well as tax obligations remain outstanding and subject to collection efforts by the government.

Exempt Property

Any property exempt from seizure in a bankruptcy proceeding will be divided between the spouses by the divorce court; the division of assets will be set out in the marital settlement agreement. Exempt property includes a vehicle, first home and some personal property such as clothes and wedding rings. State laws vary on what property can be protected in this way; second homes, for example, are exempt in some states and not in others.

Outstanding Debts

If the marital settlement agreement includes debts, those debts must be handled according to the agreement. In general, they cannot be transferred to the bankruptcy and discharged, whether or not they are secured. It’s important to file and resolve the bankruptcy before the court finalizes the marital settlement agreement. If you are considering bankruptcy during a divorce, you should try to agree on a division of property to repay any secured debts in a chapter 7 bankruptcy; otherwise, both the divorce and the bankruptcy will be subject to litigation, greatly increasing your costs and the amount of time it takes to get a resolution of both matters.

Divorce is never easy, but we can help. Learn More
How to List Your Spouse in a Bankruptcy to Discharge Community Debt


Related articles

What Can I Keep if My Husband Files Bankruptcy but I Don't?

Sometimes, married couples face financial obstacles that feel impossible to overcome, inhibiting their ability to provide for their families or plan for the future. When this happens, spouses may explore bankruptcy as a way out of the financial abyss and pathway to a fresh start. However, if your spouse filed for bankruptcy and you didn't, you may be wondering if you're at risk for losing any property. The answer is maybe, depending on where you live and what type of property was included in the bankruptcy.

How to Reinstate a Dismissed Bankruptcy

At the conclusion of your bankruptcy case, you typically will receive a bankruptcy discharge. A bankruptcy discharge means that all of the debts that are included in your bankruptcy case are erased and your creditors cannot pursue collection action against you to enforce the debts, like filing a civil lawsuit. During the bankruptcy case, you can ask the court to dismiss your case, or the court may dismiss your case on its own, and you will not receive a bankruptcy discharge. However, you can ask the bankruptcy court to reinstate your bankruptcy if it is dismissed by the court.

Can Creditors Attempt to Get Money After a Discharge?

When you file a petition for bankruptcy, you are asking a federal court for protection from creditors and time to work out your financial difficulties. In a Chapter 7 case, the court authorizes a trustee to seize your assets and sell them in order to repay creditors. In a Chapter 13, the trustee sets up a repayment plan, taking into consideration your assets as well as your income. Unless the case is dismissed, both kinds of bankruptcy conclude with a cancellation of debts you owe to some — but not all — of your creditors.

Get Divorced Online

Related articles

What Happens to Chapter 13 During a Divorce?

A Chapter 13 bankruptcy filing isn’t a quick or simple procedure. You’re not eliminating your debts as you would in a ...

Can You File Bankruptcy on Bills Obtained in a Divorce Settlement?

Sharing the responsibility for paying bills is a fundamental part of most marriages. If a couple divorces, the parties ...

Can I File for Bankruptcy if I Am Getting a Legal Separation?

Current law allows you to file an individual bankruptcy regardless of whether you're married or in the process of ...

Bankruptcy & Community Property

In a Chapter 7 bankruptcy, the trustee, the person appointed by the court to represent creditors and administer the ...

Browse by category
Ready to Begin? GET STARTED