Love & Money – What to consider when filing both bankruptcy & divorce

Many times financial problems lead to marital problems. When marital problems cannot be resolved and one or both parties decide a divorce is necessary, there are several decisions you must address before you take action. If you are considering filing for bankruptcy, you would want to consider whether both spouses should file a joint bankruptcy before the divorce is concluded. You would need to consider whether a Chapter 7 or Chapter 13 bankruptcy is more appropriate. In any event, you’ll want to consult a responsible divorce lawyer and knowledgeable bankruptcy lawyer to attempt to protect your rights as the divorce pleadings are prepared.

If you and your spouse are getting along well enough to allow you to file bankruptcy together before the divorce is granted, such a filing may very well be the cheapest solution. Instead of fighting about who has to pay the credit card debt or the medical bills, a joint discharge of those debts, so neither has to pay them, may resolve many costly fights. But if the parties are simply not able to work together or they have other issues arising from the divorce (like delinquent support or maintenance payments), a joint filing may not be possible.

When filing for personal bankruptcy, there are two variations to consider. Chapter 7 bankruptcies, referred to as a liquidation bankruptcy, are usually cheaper and faster. However, if you have assets that you might lose in a Chapter 7 bankruptcy (because they are not exempt) or you want to keep a house or a car, but need to make up delinquent payments, a Chapter 13 bankruptcy may be the better choice. Although a Chapter 13 does not discharge debts immediately, it does allow for the possibility to keep certain assets.

There are situations where you might be required to pay a debt incurred by your ex-spouse if the divorce pleadings are not prepared carefully. Kansas is not a community property state, so debts incurred while you are married are not charged to you simply because they were incurred while you were married. Instead, the divorce court will allocate assets and debts as the court deems is equitable. The allocation of the debts and the assets will be different in every case, depending on the facts and circumstances. So, there could be situations where debts you did not incur could be allocated to you and you would be responsible for paying them. A divorce attorney can advise you about your risks.

Similarly, there are situations in a Chapter 13 case where your ex-spouse may be able to discharge (i.e. not have to pay) all or part of a property settlement ordered by the divorce court. “Domestic support obligations,” as defined in the Bankruptcy Code, are not dischargeable in a bankruptcy proceeding. In general terms, that means that child support and maintenance (alimony) obligations cannot be discharged in either Chapter 7 or Chapter 13. However, property settlements (if they are truly property settlements and not in the nature of support), may be dischargeable in most Chapter 13 cases. A party should confer with a divorce lawyer when the parties’ assets and debts are being divided in the divorce to protect himself/herself if a bankruptcy were to be filed. Also, the court could order (or the parties agree) that a property settlement be secured by a lien on the property to attempt to protect it against a Chapter 13 discharge. Again, conferring with a knowledgeable attorney is key.

No matter the decision, it’s best to ensure that you have explored every option before committing to a decision that could affect your life for many coming years. Having an experienced attorney to present your options is an investment you can’t afford to skip. Hinkle Law Firm offers attorneys that specialize in each of these areas. Contact us today at 316-267-2000 to discuss your individual situation.