How Will My Virginia Divorce Settlement Be Affected By Bankruptcy?
If your ex-spouse has filed for bankruptcy, you may be left wondering how this will affect the financial arrangements ordered in your divorce decree. Bankruptcy is relatively common after a divorce, as the costs associated with separation and divorce can leave people in bad financial shape. The good news is federal and state laws are designed to protect Virginia families in the event of bankruptcy. This post outlines some of the ways your divorce settlement may be affected when one spouse files for bankruptcy.
Child Support and Alimony
Federal and state governments have decided child and spousal support is too important to be erased by bankruptcy. Federal bankruptcy law says any “domestic support obligation” ordered in a divorce decree is not dischargeable in a bankruptcy case. This includes child support, alimony, and other kinds of maintenance payments.
If your former spouse files for Chapter 7 bankruptcy (liquidation), any outstanding child or spousal support arrears will not be included as part of his discharged debts. You can also apply to seek relief from the “automatic stay” that prevents creditors from seeking repayment from a debtor that has filed for bankruptcy. This will allow you to go after any exempt assets he may have that were not liquidated as part of the bankruptcy estate.
If your ex-spouse files for Chapter 13 bankruptcy (reorganization), all overdue child support or alimony payments owed at the time he filed will be rolled into his monthly payment plan. You will begin receiving payments from the trustee for back support obligations. Your former spouse is also responsible for making all support payments as they become due. Reorganization through Chapter 13 bankruptcy takes about three to five years to complete. A bankruptcy order will not be finalized until all domestic support obligations are paid off and up to date.
Pensions, Retirement Accounts, and Other Assets
If your spouse was ordered to share a portion of his pension, IRA, 401k or other retirement fund as part of your divorce settlement, you may be wondering if these sources of income will still be available to you post-bankruptcy. Most types of retirement accounts are considered exempt assets, meaning they will not be liquidated or consolidated as part of the bankruptcy estate.
Additionally, these future payments are usually issued through a Qualified Domestic Relations Order (QDRO). In bankruptcy cases, QDROs are considered immediately transferred and therefore no longer the property of the filing spouse. This means your share of the pension will still be issued to you, even if your ex files for bankruptcy.
In limited circumstances, certain kinds of payments ordered in a divorce decree will not be protected in a bankruptcy case. Payments that are not considered a domestic support obligation may be discharged if a spouse files for bankruptcy. However, any dischargeable debts resulting from a court order are considered priority debts, meaning they will be paid first before unsecured creditors, like credit card debt and medical bills.
Need Legal Help? Talk to a Virginia Family Law Attorney
If you have concerns about how a bankruptcy filing may affect your divorce settlement, reach out to an experienced divorce lawyer. The family law attorneys at Whitbeck Cisneros McElroy PC can help. Contact our office in Leesburg, Virginia today.