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Bankruptcy in Brief

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Divorce & Bankruptcy

Often, family law and bankruptcy seem to go together. Either upon splitting up, the spouses can't pay the family debts, or one spouse seeks to use bankruptcy as a weapon against the other spouse, or the other spouse's lawyer.

Bankruptcy's effect on family law issues

For those divorcing or divorced, the bankruptcy issues generally fall into three categories:

  1. Support:   discharge, payment and the automatic stay
  2. Property settlement:   what happens to debts between spouses
  3. Liability to others:   who is liable for the debts at divorce

Filing together

Sometimes, one or both spouses can benefit from a bankruptcy filing:

  • dischargeable debts are eliminated, leaving more money for the payment of on going expenses, including support.
  • taxes can be paid, without interest, or even discharged where sufficiently old. More on taxes in bankruptcy
  • the divorce is simplified by the elimination of much of the family debt

Do we have to file together?

One spouse files

When only one files, the legal worlds of state family law and federal bankruptcy law may collide. The bankruptcy courts are left to sift through the wreckage.

Where there are non exempt assets, a bankruptcy filing by one spouse pulls all the community property into the bankruptcy estate and assures that the available assets are used to pay debts now. Most Chapter 7 cases, though, are no asset cases in which no distribution is paid to creditors because all of the assets are exempt.

The 2005 amendments to the Bankruptcy Code made debts arising in a divorce non dischargeable in Chapter 7, without any action required by the non debtor spouse. As a result, debts to even up the distribution of marital assets or obligations to hold the other spouse harmless from existing debts survive a Chapter 7 discharge. These obligations remain dischargeable in Chapter 13.

   FAQ on bankruptcy and family law

   Curing support arrears in bankruptcy

   Married filing bankruptcy separately

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