How Does Bankruptcy Affect Divorce?
Financial struggles affect many people, leaving some with no alternative but to file for bankruptcy protection in hopes of getting out of mounting debt. But, what happens if the person filing for bankruptcy is your spouse and you’re facing separation or filing for divorce?
To start, it’s important to understand that there are two different types of bankruptcy filings that re the most relevant in divorce matters — Chapter 7 or Chapter 13. Chapter 7 is a request to have all debts discharged while Chapter 13 is a reorganization where the debtor tries to arrange a payment plan to repay the bankruptcy debts.
If you’re wondering how Chapter 7 and Chapter 13 filings can affect a divorce matter, here are some of the more important factors to note.
How are Joint Debts Handled?
Obviously, one of the most common questions in these situations is how the spouse’s bankruptcy will affect debts. Will the non-filing spouse be on the hook for the other person’s debts? In some cases, they may be. It all depends on how the debts are held.
If the debt in question is only in the spouse’s name, then the non-filing spouse will not be liable for that debt. If a debt is in both parties’ names or it was jointly incurred, the non-filing spouse may be held liable. Any debts that fall under the theory of “joint and several liability” will likely still be pursued by the creditor. Since only one spouse is being relieved of the debt through discharge in a Chapter 7 bankruptcy, the creditor has the right to come after the other spouse.
Support Orders are Non-Dischargeable
If you’re already divorced and there is an order for child support and/or spousal support, you don’t need to worry that your ex is about to get out of these financial obligations. The courts treat these differently than other debts and any orders will remain in place. That means that anyone who files for bankruptcy will have to make their regular payments during the course of the bankruptcy action as well as once it’s concluded. Are they behind on their payments too? The amount in arrears will also survive bankruptcy.
Household Income and Bankruptcy
Household income is something that needs to be factored in if you and your spouse are considering divorce and bankruptcy at the same time. Couples who live together may find out they make too much money to qualify for a Chapter 7 filing. They may only be able to file Chapter 13, but once they are separated, they can both qualify for Chapter 7 individually.
When to Hire a Virginia Family Law Attorney
Balancing a divorce and bankruptcy can be a tricky matter as it presents a variety of complex legal issues. If you’re contemplating separation followed by bankruptcy, you need to ensure your separation agreement doesn’t leave you on the hook for marital debts. If you have equity in a house, it can be affected by divorce as well.
It’s important to have a skilled Virginia family law attorney representing you, especially in complex situations like this. The attorneys at Whitbeck Cisneros McElroy PC have years of experience handling complex divorce matters, including those with a pending bankruptcy. Contact our office today to schedule a consultation Let one of our knowledgeable attorneys guide you through this challenging time.