Bankruptcy After Divorce

It's not uncommon for someone to file for bankruptcy after a divorce. You or your ex-spouse may not be able to keep up with payments on credit cards and other debts on a single salary. It happens, and it's a legitimate reason to look for relief through bankruptcy.

Unfortunately, some ex-spouses try to use bankruptcy to get around living up to the divorce decree. If you're in this position, there are ways you can protect yourself.

The Automatic Stay

When your ex-spouse files for bankruptcy, all efforts to collect any debts have to stop unless they fit within one of the exceptions in the bankruptcy laws. This is called the automatic stay.

One exception to the stay is important to you. While your ex-spouse's creditors may not be able to call and demand payment or file a lawsuit to collect on a debt, you can file or continue on with a lawsuit to establish or modify a support award in your divorce decree. In some instances you can also use the courts to collect unpaid support from your ex-spouse.

How Bankruptcy Affects Support Obligations

Current support debts survive a bankruptcy without the need for you to have to go to bankruptcy court.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 gives unpaid child support and alimony claims priority over any other creditors' claims, including taxes owed. This means these claims are first in line for payment. If you're owed back support, it's very important that you file a proof of claim with the bankruptcy court to receive payment.

The law requires the trustee in bankruptcy, if there's a claim for a domestic support obligation in a case, to give you and your state's Child Support Enforcement Agency written notice of the bankruptcy and any discharge given to your ex-spouse. The notice must also give you information on how to contact your state's Child Support Enforcement Agency.

Bankruptcy and Property Settlements

Bankruptcy law reforms make non-support obligations from a divorce non-dischargeable in a Chapter 7 case. As the spouse who's owed, you have to show that the discharge of the obligation would harm you more than it would harm your ex-spouse. Non-dischargeable means your ex-spouse is still responsible for it.

You should file a complaint in bankruptcy court to get your property settlement debt excepted from discharge. If you don't file a claim with the bankruptcy court, the debt may be wiped out, and you won't be able to collect it later.

The discharge in a Chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts arising from divorce property settlements.

How do bankruptcy courts decide what's a support obligation and what's a property settlement? It varies greatly by state, but courts have based their decisions on such questions as:

  • Do payments end or decrease if a certain event happens, like remarriage or a child turning 18?
  • Are you paid in installments or a lump sum?
  • Are there minor children?
  • What's the relative health and education of the parties?
  • Was there a need for support at the time of the divorce?

The way in which the divorce decree is written can reduce the chance that the bankruptcy court will discharge the debt. You can reduce the likelihood that the debt won't be discharged by labeling the debt payments as either support or alimony in the decree.

The Bankruptcy Process

If you're listed as a creditor on your ex's bankruptcy petition, you should receive notice from the bankruptcy court of the filing and information about the date and time of the first meeting of creditors (known as a 341 meeting). You should also receive information on the deadline for filing a claim and a proof of claim form to complete and file with the bankruptcy court.

But whether you have notice of your ex's bankruptcy from the court or just through random gossip, you're responsible for finding out what's going on and doing what you need to do to protect your interests. Don't bury your head in the sand: Find a lawyer and protect yourself.

Returning to Divorce Court After Bankruptcy

What if the bankruptcy court allows your ex to discharge debts owed to you or other creditors under your divorce decree? You can go back to divorce court to ask for an increase in alimony or child support. You'll need to show a change in your financial circumstances caused by the additional debt or the reality of not receiving property or money you were awarded.

Unlike alimony and support payments, property settlements usually can't be modified because of changed circumstances. There are exceptions, like fraud or duress. You'll have a heavy burden of showing the court that fraud was involved even though your ex-spouse filed for bankruptcy immediately after the divorce.

If you're the spouse who pays child support or alimony, there's nothing shameful about going back to the divorce court to ask for a reduction in support payments to fit your current reduced financial circumstances. It's much better than being stuck with debt you'll never be able to catch up with or being dragged back to court and ordered to pay what you can't afford.

There's nothing easy about divorce and bankruptcy. If you find yourself involved in both, it makes sense to find a bankruptcy lawyer who can help protect your interests.

Questions for Your Attorney

  • Will getting remarried affect the bankruptcy proceeding?
  • Can I have a child custody agreement changed based on my ex's bankruptcy filing?
  • Are there any tax problems to worry about if my ex files for bankruptcy after our divorce?

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