How Filing For Bankruptcy After A Divorce Can Help You

There are arguments to be made that either of the parties could be more financially affected, oftentimes, not all divorces run this way, one partner has been at home with children and the other one has been the breadwinner, or one partner is earning more than the other.

After a divorce, the partner that was earning more may now have to support the other partner in part or whole through alimony or spousal support, and so that person could be more financially affected.

On the other hand, a partner who has been at home with children, or underemployed for a time while the other partner is getting situated with their career, now all of a sudden they can’t rely on that other income, that person is also deeply affected financially because now they have to support themselves if they’re not getting support financially from their ex-spouse.

Could Divorce Lead To Having To File For Bankruptcy?

Yeah, it’s the second-highest reason that people file for bankruptcy, the first of course is medical debt, we’ve talked about that before.

Divorce is a huge reason that people file for bankruptcy.

Leading up to a divorce you have been probably in one household, and now you have to support two households with two home payments or rent payments, two sets of electric bills, two sets of internet service providers, and splitting your income down the middle.

That makes it hard to keep paying on things like medical debt, credit card debt, and other things that might be dischargeable.

You might all of a sudden have to pay for child care and that’s an expense they didn’t have in the past, so yes, bankruptcy is huge and has deep roots in divorce proceedings.

Does Bankruptcy & Divorce Go Hand In Hand?

They do, you will learn more about filing bankruptcy before the divorce versus after the divorce and the implications of both.

We can’t tell how many times we’ve seen people go through bankruptcy and then get a divorce because of financial hardship and other reasons, or they want to clear things up before they divorce, get rid of the debt, and then go on and they divorce.

It’s very difficult and no one’s particularly happy during these times.

There’s a stigma here in 2022 against divorce, especially in some cultures or religious backgrounds, so if you’re having to face that emotional hurdle, and then you think about bankruptcy, people often think of that as a failure.

It takes a hit, it does, it is not unusual for people to come to our office with high anxiety or high depression.

Is It Better To File For Bankruptcy Before Or After Getting Divorced?

If you can stand to speak to your spouse, it’s best to do it before you get divorced, the reason is that particularly in Chapter 7, a bankruptcy will clear out the debt, that is one less thing you have to divvy up in the divorce proceedings.

If you don’t file bankruptcy you’re gonna go through the process and you’re gonna have to decide: Okay, he’s gonna take the credit card payment from capital one, and she’s gonna take the credit one payment.

It’s more stuff that you have to argue, and then, you say: Well, I didn’t incur that debt, I’m not the one who went shopping at Kohl’s, that was you! All those arguments can happen.

Making it equal or equitable are two different things, so filing bankruptcy before that just wipes that out, gets that stuff out of the way and it’s less you have to negotiate during your divorce proceedings.

Is It Wise To File For Bankruptcy & Divorce At The Same Time?

In Chapter 7 it doesn’t change a lot, which is the quicker three-month situation.

If you’re doing it while you’re in Chapter 13 which is the 3 to a 5-year restructuring of your payments, it’s pretty difficult, you have to have your divorce attorneys employed by the court, so you have to have approval.

Then, you think about if all of your money is going to the bankruptcy, how are you going to pay for your divorce attorney, things like that, it just gets pretty messy.

We do want to talk about filing after a divorce, particularly Chapter 7 because Texas has some really special considerations.

We have talked before about how Texas is a community property state, and of course, that’s an issue that’s huge in divorce proceedings, everybody owns everything 50-50.

The same thing goes for debt so, if you’re married and you’ve taken out three credit cards, it’s time for you to file bankruptcy, none of the credit cards are in your husband’s name because you live in Texas, the debts can also be attributed to him even though he’s not on the application, his name isn’t on the card, nothing, it’s a community property state, that’s how it goes.

The two kinds of bankruptcy that we talk about have different implications for that, if you were to file a Chapter 7 after you got divorced, then it can complicate things.

This is called co-debtor protection, there’s no co-debtor protection in Chapter 7, if you were supposed to pay these three credit cards according to the divorce decree, then you file a bankruptcy, and those creditors can go to your ex-husband, and say you were married at the time this money was taken out.

Now, this is your debt and your ex-husband is going to be very mad at you because you filed bankruptcy, and now he’s on the hook even though he has a divorce decree that says that he’s not required to pay it.

Creditors don’t have to pay attention to divorce decrees, they don’t care, it’s just a civil agreement between the two of you.

Alternatively, Chapter 13 which is longer and more expensive, and more involved does have co-debtor protection, so it might be wise for you to file a Chapter 13 so your ex-husband doesn’t get mad at you and hold you in contempt of court for not obeying the divorce decree.

Which Bankruptcy Chapter Is Recommended If I Am Wanting To Get Divorced As Soon As Possible?

Chapter 7, and we would recommend that you fill it with your spouse because that one has a shorter timeline from filing to discharge.

It’s going to be three or four months until you get that stuff wiped out and then you can proceed with the divorce.

What Happens To My Bankruptcy Case If I Divorce After Filing?

After you get your discharge after the bankruptcy, you’re allowed to go on with your life, there is one caveat with a Chapter 7, if you become entitled to a property settlement from your divorce within 6 months of filing your bankruptcy, that may have to go to the trustee to pay your creditors.

Timing’s really important in bankruptcy, that’s the only asterisk that we would say but you filed, you got your discharge, you can go on and take a trip, you can get divorced, you can get married, you can do whatever you want.

What Happens If We File For Bankruptcy Jointly But Now We Want A Divorce?

If you’re still in the middle of a bankruptcy, if you’re in Chapter 7 you can file for divorce, it’s not going to change anything because in Chapter 7 what’s primarily important is what was in the picture on the day of filing.

You can also tell the trustee or tell the court there’s going to be some significant changes to our finances in the year ahead, we’re filing for divorce, we’re separating, so now we’re going to have two households to support.

If you’re in the middle of Chapter 13 together, you have been making your Chapter 13 plan payments, you’re going to have to figure out who is responsible for making that plan payment or how you’re going to split it up between the two of you, and how you want things to proceed within the bankruptcy.

You also need to talk with your lawyer about getting your bankruptcy attorneys employed by the court and figure out how you’re going to pay those lawyers too.

If I File For Bankruptcy Now, Can I Stop Paying For Child Support? What About Alimony?

Both of those kinds of payments, child support, and spousal support, fall under the category of domestic support obligations, one big thing for all of those support payments.

Congress has said that money is not dischargeable in a bankruptcy, no matter what, there’s no way around it.

If it’s a support payment you have to keep paying it.

If you’ve fallen behind and you’re in Chapter 13, by the end of your Chapter 13 plan 3 to 5 years from now, you have to sign a certification that states that by the time you’re out of bankruptcy you will be current on those support payments.

There’s that kind of support but often in divorce proceedings you have other things that might be considered support, but in your divorce decree it’s listed as a property settlement or it’s not considered spousal support.

Those kinds of things are maybe payments for your spouse’s part of the equity in the home, so you have to make some payments of 500 dollars a month or whatever until their half of the equity is paid, or you’re required to pay half of the medical bills of your child.

They are not in your divorce necessarily considered strictly child support or strictly spousal support, but a bankruptcy court looks at those kinds of things and says it is as support.

It’s a pretty well-settled law, paying half of your child’s medical expenses while it’s not child support, it’s like support, you are supporting your child’s health by doing that.

Those medical bills in that case are not dischargeable.

In Chapter 13 you might be able to try to make the argument that a property settlement is not like support and if it’s not like support, you are unable and will always be unable to pay that.

What Type Of Debts Can Get Discharged If I File For Bankruptcy After I Get Divorced?

If you file a bankruptcy as long as it’s not your child’s or your spouse’s medical payments providing them with insurance, your debt, your credit cards, your medical bills, all of that is dischargeable.

If you had a car that was repossessed and you still owe the balance of the loan, that’s dischargeable.

Lots and lots of things are dischargeable, and in Chapter 7, sometimes that’s just the break you need to be able to make ends meet as you start on your new life.

Could Bankruptcy Help Me Wipe Out Attorney & Court Fees When I Was Going Through My Divorce?

Some court fees are dischargeable, if you accrued attorney’s fees and that attorney helped you with custody determination, who’s going to have residential time, how much is your child support payment going to be, that is not dischargeable in bankruptcy.

You can’t file bankruptcy after your attorney has helped you work out all that stuff for the children or the child.

If you have other kinds of attorney debt, that may be likely dischargeable.

If it’s completely unrelated to the divorce it’s probably dischargeable, you can always pay any of your debt voluntarily after the fact.

This is one of the reasons why in Chapter 7 attorneys have to ask for all the Chapter 7 fees upfront because our fees would get discharged into bankruptcy, and that would be a bad business model.

In What Ways Can Bankruptcy Affect Divorce Settlements?

If you become entitled to receive a divorce settlement within 6 months of filing your Chapter 7 that becomes that settlement, whatever it is, becomes property of the bankruptcy estate.

The trustee could recuperate whatever that settlement is even if you don’t get it till 3 years down the road, they can recuperate it and give that money to the creditors.

A perfect example is, you’ve divorced, your ex-spouse has to pay you half the equity in the house, they’re going to keep the house but they have to pay you for the half of the equity, then, if you’re entitled to receive that within 6 months of filing Chapter 7, you need to know that that is available to the trustee to pay creditors.

Make sure you time your bankruptcy filings so that you can retain as much as you can.

In Chapter 13 that also may become part of the bankruptcy estate depending on the wording and the circumstances of the parties.

There’s an argument to be made that you might be able to have that discharged, and that’s something we’ve represented several clients on, so it may be dischargeable.

You want an experienced bankruptcy attorney who will tell you the truth and say: Oh no, that’s probably going to be considered like support, or that’s not, that’s just something and so you might be able to get that discharged, it just depends on every different case.

Read more here

In case you have additional questions about your divorce, bankruptcy, or your specific case, you can contact us at (855) 502-0555. After a short 10-minute evaluation of your case over the phone, we will let you know what options you have. You can also follow us on our social networks so as not to miss our weekly transmissions via Facebook, YouTube & Twitch.