Divorce and Bankruptcy

Often, family law and bankruptcy seem to go together. Either upon splitting up, the spouses can’t pay the family debts and jointly need bankruptcy relief, 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

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.

A spouse who has the benefit of an indemnity agreement in a divorce decree (a provision that requires the other spouse to pay certain debts or repay the benefited spouse if the creditor makes that spouse pay the debt) may be able to prevent the discharge of the indemnity agreement under 11 U.S.C. 523(a)(15).  There are no other bars to one spouse discharging  all liability for non tax/ non support debt.

 

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