Articles Posted in Divorce and Bankruptcy

This category answers questions about how divorce and bankruptcy procedures, courts, and laws intersect with each other.  Should you file for divorce first? Or should you file bankruptcy first? Should the property settlement be worked out first? There are pros and cons to how you proceed and having your divorce attorney and your bankruptcy attorney working together will ensure the best outcome. In both areas you are looking for a clean, fresh start. But if handled wrong, you could end up with anything but that. Whether your separation process is amicable or not, if dealing with overwhelming debt is something you must consider, you need to discuss this with your family attorney before finalizing anything. They may not have much experience in the area of deal with Chapter 7 or Chapter 13 cases to handle the overwhelming debt issues, but they would know enough to suggest whether or not you should seek further counsel on the topic.  For some, finalizing the separation of the marriage first makes more sense. There may not be a lot of assets to deal with or a lot of joined debt. One person may wish to file for Chapter 7 or Chapter 13 bankruptcy while the other may not wish to file at this time.  Sometimes it is better to do so first if you have a lot of debt that is signed by both parties so that it can be dealt with by both parties.  Look into your options. Discuss strategy with your attorneys. So much can be gained by obtaining a free consultation!

Beware of swapping your domestic obligations with your former spouse.  Substituting debts or replacing property that was originally the former spouse’s obligation or asset can bring about unforeseen consequences.

Example:  The former wife was awarded the marital home, and the former husband was required to pay the mortgage until satisfied.  His business began to falter and he could not continue paying the mortgage.  In order to assist him, the former wife agreed to let him use the home as collateral for a new loan, which both parties signed.  In the former husband’s bankruptcy case, his obligation to the former wife was discharged (wiped out) because the new loan constituted a new debt that was not covered by or arising out of the parties’ marital dissolution agreement or divorce decree.  So the former wife’s choices are now to remain responsible for the debts of which the home is collateral or to discuss filing her own bankruptcy.

Please consult with a bankruptswapping moneycy attorney to discuss options to do to deal with debts that are overtaking you for whatever reason. And especially – never, never, never put your home up for collateral to deal with other debts without consulting with a bankruptcy attorney first.  It may seem backwards but there is nobody better to consult with on how to deal with debt (and to try to avoid bankruptcy) than a bankruptcy attorney.  Seeking advice early is the key. In the above example, a lot of heart ache, a home, and possibly even a business could have been spared if this advice had been followed.


No.  Spendthrift trusts, IRA accounts, 401K plans, and ERISA qualified retirement plans are not property of a bankruptcy estate.  If an asset is not property of the estate, the debtor does not have to claim it as exempt to protect it from the claims of creditors; it is by definition beyond the reach of bankruptcy creditors and the trustee. The bankruptcy filing and the automatic stay would have no impact on the division or settlement of these types of accounts in a divorce proceeding.

bankruptcy court jurisdictionBankruptcy court authority in the domestic relations arena is limited and very narrow.  Bankruptcy courts cannot grant divorces, decide custody or award support.  Bankruptcy courts have the authority by statute to decide two things:

  • whether an obligation is in the nature of alimony, support or maintenance, regardless of how it is labeled
  • whether a debt is a non-dischargeable property settlement obligation or not, again, regardless of how it is labeled

drivers-license-&-id-bigThe “withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license, or the reporting of overdue support to a consumer reporting agency, or the interception of a tax refund” are actions that can be taken upon an individual as a penalty for failure to pay support.  These penalties are excepted from the Automatic Stay and can continue despite the initial filing for protection under bankruptcy. However, by filing a Chapter 13 bankruptcy the Chapter 13 plan will provide for payment of the past due amount as well as offer provision for the current and ongoing amount owed to ensure that the debt does not become delinquent at any time during the life of the Chapter 13 plan. Once the Chapter 13 plan is confirmed (you file, attend a 341 hearing approximately 30 days later, then the bankruptcy judge approves the plan approximately 30 days after that thus “confirming” the plan) with payment of the past due support provided in the plan, any continuing action of any of these penalties would be in violation of the confirmed plan and the creditor could be subject to sanctions if they continue any such actions against the debtor.  So bottom line is yes, a Chapter 13 bankruptcy could provide some relief regarding these types of penalties.

jailFiling Chapter 13 bankruptcy can be used to pay past due support over an extended period of time (max of 5 years within a single Chapter 13 plan) and yes, it can protect the debtor from going to jail for previously failing to pay what was due.  It’s important to note that you cannot discharge (wipe out) in any type of bankruptcy (Chapter 7, Chapter 11, Chapter 12, Chapter 13, etc) debts relating to child support, maintenance, alimony, and other domestic support obligations.  Not only will the Chapter 13 plan provide for catching up the past due amounts, but it will also provide for the current and ongoing payments in order to prevent the debtor from becoming behind in support during the Chapter 13 bankruptcy plan period.

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