Unfortunately, two areas of law that frequently collide are bankruptcy and divorce. The financial stress that makes bankruptcy necessary also often makes divorce possible. When someone facing divorce needs to also file bankruptcy there are several things that need to be considered. Below is a list of some things to keep in mind, but be sure to retain an experienced family law attorney to help through the dissolution of marriage process.
- Filing bankruptcy will not discharge alimony or child support obligations. Regardless of what type of bankruptcy is filed, debtors cannot escape the responsibility of paying alimony and child support. This may also include other payments, such as legal fees, that are in the nature of support to the other ex-spouse. It’s sometimes necessary to get a court ruling on whether payments are in the nature of support.
- Property settlements, including a division of debts incurred during the marriage, may be discharged in a Chapter 13 bankruptcy but not a Chapter 7 bankruptcy.
- Consider using a Qualified Domestic Relations Order (QDRO) to transfer interests in retirement accounts from one party to another. Having a QDRO in place may be required for the receiving spouse to protect retirement accounts in a bankruptcy.
- Property settlements in a divorce that a debtor becomes entitled to receive within six months of filing bankruptcy may be subject to turnover to the trustee. It’s therefore vital that someone contemplating both bankruptcy and divorce get experienced legal advice about the timing of filing both the divorce and the bankruptcy.
- If spouses who have filed a Chapter 13 bankruptcy divorce during the term of their plan it might be possible to convert the case to a Chapter 7, split the case into two cases, with one or both of them remaining a Chapter 13 or converted to a Chapter 7. A conflict of interest in how this occurs may result in one or both spouses needing to hire a different attorney though so that their separate interests are protected.
No married couple wants to face either divorce or bankruptcy but it happens and it’s important to have experienced attorneys helping both spouses navigate through the process.