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BANKRUPTCY: WILL IT IMPACT YOUR
DIVORCE?
Once
a divorce complaint has been filed, or at the time that the parties
separate, finances become quite important. The parties are either living in two homes, or
contemplating a separation, meaning the money that had supported one
home will now have to provide for two homes. The issues of child support,
alimony, etc., have been discussed in prior newsletters. In the event that the parties
have experienced an unusually difficult financial situation during
the marriage, bankruptcy may be an option for one or both of the
parties. Prior to filing
for divorce, it is important to consider the amount and type of
credit card debt, the status of the mortgages, home equity lines, and
other possible liens against the marital home, in order to determine
whether bankruptcy is an option. I am not a bankruptcy attorney, but I am aware of
how bankruptcy and divorce interact. Anyone with specific questions related to
bankruptcy, or those individuals receiving calls from a debt
collection company, should contact a bankruptcy attorney for further
information and options.
It is extremely important to
consider options in bankruptcy prior to filing a divorce. It may be that there is a
benefit to both parties to file a joint petition for bankruptcy, as
opposed to filing separately.
Additionally, consideration must be given to whether or not
there is a personal bankruptcy filed, and/or whether there are
bankruptcies filed for businesses/corporations.
Anyone
contemplating divorce and a possible filing of bankruptcy should
consult with both a domestic relations attorney and a bankruptcy
attorney as well. In the
event that a party files for divorce, and during the time the divorce
is pending before the Probate & Family Court makes a decisions to
file for bankruptcy, that bankruptcy filing will prevent the divorce
from proceeding in a timely manner, unless relief is granted from the
bankruptcy court. At the
time that a bankruptcy is filed, there is an automatic stay filed
that prevents creditors from further actions or proceedings against
the debtor. Therefore,
it is always wise to consider whether or not the parties will file
for bankruptcy first, joint or otherwise, prior to filing for
divorce. Parties with
joint credit card debt should be concerned if their spouse files for
bankruptcy in his or her name only, as the other spouse may be named
as a creditor on his or her bankruptcy petition. If one spouse's debt, credit
card or otherwise, is discharged, that is have no further obligation
to pay, the creditor will likely try to find any other guarantors or
joint card holders. This
could have a significant impact on the division and allocation of
debt and other marital assets.
There
are several debts that may not be discharged in bankruptcy. These include child support,
alimony, student loans, criminal restitution, and some obligations
from a property settlement in divorce. There is a strong policy interest in protecting ex-spouses
and children from the loss of alimony, support, and maintenance owed
by a debtor who has filed for bankruptcy. Additionally, case law is clear that attorney's
fees incurred by a spouse are non-dischargeable so long as the
primary debt is excepted from discharge. Therefore, if attorney's fees are awarded as part
of a judgment of contempt for failure to comply with court orders or
judgments regarding child support and/or alimony, such attorney's
fees are also non-dischargeable in a subsequent bankruptcy, even if
the debtor lists the attorney and/or the spouse as a creditor. Therefore, it is extremely
important that there is a clear distinction between alimony and
property division, and that the courts do not "blur" or
merge the two issues.
Due to the complexity of the issues
related to bankruptcy, it is always advisable to seek the assistance
of a bankruptcy attorney.
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