A divorce decree usually divides marital property as well as marital debt. Filing for bankruptcy can greatly complicate a divorce and could result in unexpected financial consequences. If you are facing heavy debts and the breakdown of your marriage at the same time, it's important to understand the relationship between bankruptcy and divorce, and how these legal processes can affect you.
Divorce-Related Debts May Not Be Discharged in Bankruptcy
If your divorce decree requires you to pay alimony or child support, you probably won't be able to discharge those debts by filing for bankruptcy. Likewise, if your divorce decree requires you to turn over money or property to your spouse as part of a property settlement, you'll likely still owe those debts. There are a few exceptions to these rules, and some depend on whether the debt is viewed as a form of support or as a property settlement. These and other divorce-related issues can greatly complicate a bankruptcy case.
Some of Your Property May Be Protected
Bankruptcy laws allow you to protect some of your property from creditors, no matter how much you owe. You can usually keep your primary home and a car up to a certain dollar value. You can also keep some of your household goods and clothing. The specific items and amounts that you can keep are determined by current bankruptcy laws, which change from time to time. A divorce court is not obligated to respect these rules.
Completing Bankruptcy Before Filing for Divorce Can Simplify Matters
If your divorce decree divides marital debts between you and your spouse before your bankruptcy case is final, creditors can come after you for your share of the assigned debts - even if those debts were run up by your spouse. Depending on the facts of your case, you might want to file for joint bankruptcy with your spouse, wait for the bankruptcy to wrap up, and then file for divorce.
Once the bankruptcy is over, creditors won't be able to come after either of you for most old debts. In some cases, however, it can take up to five years to complete a bankruptcy case.
An Indemnity Clause Might Protect You
If you don't want to wait until your bankruptcy is complete to file for divorce, you may be able to protect yourself from bankruptcy creditors by having an indemnity clause inserted into the divorce decree. This clause should be worded in such a way that your spouse is required to pay all bankruptcy debts or must pay you back if creditors come after you for the debts.
A Divorce Lawyer Can Help
The law surrounding divorce and bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a divorce lawyer.