Divorce & Bankruptcy: The Handmaidens of Misery
July 5, 2016
Tags: Alimony, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Divorce and Bankruptcy, Ex Spouse Bankruptcy
Filed in: Alimony, Bankruptcy, Child Custody, Child Support, Family Law
Written by Michael P. Mallaney
You have just gone through the misery of an emotionally draining divorce. The State Court by virtue of Decree after trial or by agreement has established the rights and liabilities related to marital debt — the unpaid credit cards, car loans, first and second mortgages on the house that neither you nor your ex-spouse can now afford as the family is no longer a two-income family. The dissolution decree entered by the State Court Judge ordered your former spouse to hold you harmless on certain joint credit card debt, to pay the car loan, and to be responsible for the debt on the home which your former spouse is to refinance. The Court further directs that your former spouse pay you a specified sum of money by a certain date as part of the property settlement provisions of the decree. Your ex-spouse is also to pay alimony and child support. You believe you are done and that this matter is concluded and over, and you can move on with your life. Not so fast!
Your ex-spouse drops a bombshell on you. He or she cannot make the credit card payments as directed, and cannot refinance the house and pay the property settlement. Your former spouse further advises that he or she is going to file for bankruptcy. You then receive in the mail two weeks later a Notice of Bankruptcy Filing from the Bankruptcy Court indicating the fact that your former spouse has filed bankruptcy. What should you do?
You should first contact your divorce attorney and provide him or her a copy of the Bankruptcy Notice. This is very important as you are now in a different Court (Federal Court). Bankruptcy Court and Divorce Court are competing systems with competing and confusing rules. There are deadlines for filing claims and contesting your former spouse’s bankruptcy if warranted. The deadlines are short when compared to the deadlines you faced in the State Court dissolution proceeding requiring the bankruptcy of your former spouse be given immediate attention. Your divorce attorney, who probably knows nothing about bankruptcy, will refer you to a bankruptcy attorney.
When you meet with your bankruptcy attorney for the first time you will probably ask him and/or her whether or not the credit card debt holders and the mortgage company can pursue you when the dissolution Court has already ordered your ex-spouse to pay these debts. Your bankruptcy attorney will tell you that divorce settlements and divorce decrees do not bind creditors who can collect the debt from either of you. If your ex-spouse does not pay his or her share of the debt the creditor can come after you for payment. Your former spouse’s bankruptcy could very well send you into bankruptcy yourself. Your bankruptcy attorney will tell you that there are several kinds of bankruptcy. The most commonly known form is a Chapter 7 and the other is a Chapter 13 bankruptcy. The procedure and your rights and/or liabilities are different depending on what Chapter of bankruptcy is filed. Your bankruptcy attorney will tell you the good news that in a Chapter 7 bankruptcy proceeding alimony, child support and property settlement remain non-dischargeable. This means your former spouse will have to honor the Dissolution Decree and pay the support and/or property settlement. The non-dischargeability of these debts is automatic and no court order is needed from the Bankruptcy Court.
Chapter 13 bankruptcy is a different story. It’s more misery. Alimony and child support remain non-dischargeable which your former spouse will have to pay; however, property settlement may be modified and discharged and/or forgiven by the Bankruptcy Court which means your former spouse may not have to pay all or some of the property settlement. Every case is different and determined on the facts and the law. Chapter 13 issues will be decided by the Bankruptcy Court not the State Court in which you obtained your Dissolution Decree.
While the divorce process brings its own set of miseries, you may not be out of the woods if bankruptcy knocks on the door. Be sure to consult with an experienced divorce attorney in hopes of avoiding the misery that an ex-spouse may bring with the bankruptcy down the road. Sometimes this misery is inevitable. Be sure you have a trustworthy bankruptcy attorney to wade through the murky waters of misery.