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Divorce and Bankruptcy

One of the main causes of bankruptcy in the United States is divorce, which is certainly understandable — living expenses increase due to the addition of an additional household when one spouse leaves, while income generally remains the same or actually decreases. There is also an undeniable emotional connection between divorce and bankruptcy; in each situation, the parties are looking for a “fresh start” and wanting to sever as many of their connections as possible. 

It is also true that one of the main causes of divorce is bankruptcy. Financial problems are one of the leading causes of marital strife and divorce, and for some the stress of bankruptcy is the proverbial last straw in a troubled marriage.

The interaction of federal bankruptcy law with state laws regarding divorce is a complicated subject requiring the expertise of attorneys familiar with both topics. There are the issues of bankruptcy’s automatic stay (that stops all lawsuits, including divorces), the treatment of domestic support obligations like child support and maintenance, property distributions, division of debts, and many other topics that can arise depending on the chapter of bankruptcy involved, the assets and debts of the couple, and the timing of the filing of the cases.

Some key things to consider:

  • Only married couples can file a joint bankruptcy. Once the divorce is final, the parties can only file separate bankruptcy petitions.
  • Child support, and many other domestic support obligations, are not dischargeable debts in bankruptcy.
  • The divorce decree, unlike the bankruptcy, is not binding on creditors but only binds the former spouses as to payment of the debts. Specifically, a divorce decree cannot remove one of the spouses from a debt. For this reason, many divorce decrees contain provisions for payment or refinancing of debts.

There are many other factors that must be examined on a case-by-case basis. Give us a call to schedule an appointment if you have further questions on this complicated topic.