A former spouse with a signed divorce settlement agreement may be considered a creditor in the bankruptcy proceedings. In order to protect his or her rights, he or she may need to file a bankruptcy claim. The timing of the divorce settlement can make a difference regarding what kind of effect a bankruptcy will have.
Is it better to file bankruptcy before or after divorce?
One pro of waiting until after your divorce is final before filing for bankruptcy is that only your income can be considered in the means test that the court applies. So if you are divorcing a large income earner and want to file for Chapter 7 as opposed to Chapter 13. Then it might be best to divorce first.
When bankruptcy is filed after divorce?
You should wait to file for Chapter 7 until after your divorce, however, if you desire this type of bankruptcy but do not qualify because your income is too high. Waiting until after your divorce could lower your assets enough to qualify for Chapter 7 bankruptcy.
Can bankruptcy clear my ex spouse's debts after divorce?
While you can discharge your obligation to pay a debt, you can't discharge your ex-spouse's payment obligations. If you're filing Chapter 13 bankruptcy after a divorce, you will be responsible for repaying any debts attached to your name even if your ex-spouse is responsible for creating the debt.
Why is file bankruptcy before a divorce?
Why You May Want To File Bankruptcy Before Filing For A Divorce?
- Filing a joint bankruptcy will save you money. While you are married, you and your spouse can file a joint bankruptcy case. ...
- You get double the exemption. In a bankruptcy, there are certain exemptions that allow you keep some property. ...
- Saves time. ...
- Helps in the Divorce. ...
- A bankruptcy may even prevent the divorce. ...
- No joint debt. ...
Can a divorce be bankrupt?
Filing for bankruptcy first can also make the property division portion of your divorce case simpler. In a normal divorce, the court will divide both the assets and the debts. If you and your spouse secure a discharge of your unsecured debts, neither one of you will have to pay them after you receive the discharge.
Can one spouse go bankrupt and not the other?
If most debts are owed only by one spouse, it may be appropriate for that spouse to file for bankruptcy alone. However, if one spouse does file for bankruptcy in order to discharge debts, the other spouse may be held responsible for repayment of some debts, such as jointly-owned credit card debt or medical debt.
How is debt settled in a divorce?
As part of the divorce judgment, the court will divide the couple's debts and assets. The court will indicate which party is responsible for paying which bills while dividing property and money. Generally, the court tries to divide assets and debts equally; however, they can also be used to balance one another.
Can a creditor come after me for my spouse's debts?
What Property Can Be Taken to Pay Debts? In a community property state, creditors of one spouse can go after the assets and income of the married couple to make good on joint debts, and remember, most debts incurred during marriage are joint debts.
Can my ex sue me for money after divorce?
Money you earn after your divorce is generally yours, but your ex-wife can still get her hands on it in some cases. You might realize that every dollar you earn during marriage is only half yours, but you may not be as sure about the money you earn after you and your wife split.
How do I protect myself from my husband's debt?
Keep Things Separate Keep separate bank accounts, take out car and other loans in one name only and title property to one person or the other. Doing so limits your vulnerability to your spouse's creditors, who can only take items that belong solely to her or her share in jointly owned property.
Can I be held responsible for husband's debt?
Since California is a community property state, the law applies that the community estate shared between both individuals is liable for a debt incurred by either spouse during the marriage. All community property shared equally between husband and wife can be held liable for repaying the debts of one spouse.
What happens to debt when you separate?
If your debts are shared, you'll both be responsible for the whole amount - not just your half. This means if your ex-partner stops paying the debt off after you separate, you'll have to settle the debt by yourself.
Do I have to pay bills when I separate from my wife?
Just like mortgages, the repayment of any joint debts must continue after divorce or separation. Your personal life is of no concern to lenders after all. But of course, you now wish to lead separate lives and an important step toward doing so will be disentangling your finances.
Who is responsible for debt after separation?
Both of you are liable to pay off any joint loans you have. If one or both of you doesn't keep up the payments, it could affect both your credit ratings and your ability to borrow in the future. You might want to: Agree with your ex-partner that you'll continue to make payments from a joint account.
How are car loans split in a divorce?
Your divorce decree is, among other things, a contract between you and your ex-spouse, but it does not govern your creditors. Thus, a joint car loan continues to be joint in the eyes of your creditor, even if your former spouse is the party ordered by the court to maintain responsibility for the loan.
What happens if a spouse is obligated to pay a divorce debt?
If a spouse is obligated to pay a divorce-related debt, the indemnification language would make it near irrefutable that the non-filing spouse has legal standing to challenge the treatment and classification and dischargeability of a debt included in the filing spouse’s bankruptcy.
How to protect a client in a divorce agreement?
Another way to protect a client in a divorce agreement or order is to reserve the issue of alimony for failure to abide by the orders of the court, including payment of the debts.
What is a hold harmless debt?
Hold-Harmless Debts. When an order or agreement contains language that orders Spouse A to hold harmless or indemnify the Spouse B for a debt that Spouse A is to pay, the Court is creating a potentially non-dischargeable debt – the indemnification debt from Spouse A to Spouse B.
Why was Giddens' debt not dischargeable?
The court denied some of the grounds but ultimately, agreed that Giddens debt was not dischargeable because it was procured through fraud. More specifically, the court found that at the time Giddens entered into the marital settlement agreement, he had no intention of living up to his obligation to pay and transfer property to Morales.
What to consider when drafting a divorce agreement?
Protecting the Non-Filing Spouse in a Chapter 13. There are several items that should be considered when drafting a divorce agreement or judgment and trying to avoid issues and protect the non-filing spouse in case of a Chapter 13 filing.
What is the purpose of filing bankruptcy?
When an individual files a bankruptcy, the most basic reason is to eliminate debts by receiving a discharge. In a Chapter 7, the individual eliminates unsecured debts (such as medical and credit card debt) and keeps property that is exempt. In a Chapter 13, the debtor proposes a plan to pay back certain types of debt over a three to five year period, can catch up delinquent loans on secured property, and can keep non-exempt property. In either a Chapter 7 or 13, the debtor receives an order at the conclusion of a successful case that discharges (eliminates) any remaining debt. However, some debts may be non-dischargeable, and high among the non-dischargeable debts are debts related to divorce.
How to determine if a divorce debt is dischargeable?
The primary question that needs to be asked when determining whether a divorce-related debt is dischargeable is if the debt is a Domestic Support Obligation (DSO). The Bankruptcy Code defines the domestic support obligation at 11 U.S. Code § 101 (14A). The simple version is any child support, alimony, or any other payment that is “in the nature of alimony, maintenance, or support” will be a DSO. The Bankruptcy Court will look to federal law to make this determination, and will look past any labels that may have been used in the divorce agreement or order. The determination is a case-specific determination of whether the intent of the parties or the divorce court was for the obligation to be the nature of support.
3 attorney answers
Whether you can discharge all or part of the $10,000 owed to your ex depends on the what the money is payment of. The previous commentors are correct in that the debt is not dischargeable if it is for alimony, spousal or child support.
Scott Douglas Jordan
That depends on what it is for. If it is for alimony, spousal support, or child support, the short answer is "no". The 2005 amendments to the Bankruptcy Code refer to these as "domestic support obligations", and they are generally not dischargeable under any chapter of the Bankruptcy Code.
Michael W. Gallagher
If it is part of the bankruptcy decree it is not a judgment. If it is a property distribution you may be able to discharge it in a chapter 13 but a chapter 7 will not discharge it. If the order is in the nature of an order of support it could be found to be non-dischargeable.
What happens after bankruptcy?
After the sale, any outstanding debt is discharged and you are no longer responsible for paying it. No property is sold in a Chapter 13 bankruptcy. Instead, a repayment plan is put into place based on your income, to be paid over time.#N#Read More: What Happens After Bankruptcy Discharge?
How does a divorce work?
Most states allow couples in a divorce to specify by agreement how marital debt should be divided. If they cannot agree, the court will apportion the debt based on state law. Some states treat debt as community property and divide it equally between spouses, while other states allocate the debt according to what is considered "fair." In considering what is fair, a court will look to several factors, including each spouse's ability to pay.
What is an indemnification clause in a divorce?
In cases where a couple co-signed on a debt, such as a car loan, either the parties or the court may insert an indemnification clause into the divorce decree or settlement agreement. These provisions are meant to protect against a scenario wherein the debt balance is assigned to one spouse who then discharges the debt through bankruptcy, leaving the other spouse potentially liable to the creditor. Thus, an ex-spouse is prevented from later arguing during a Chapter 7 bankruptcy that the debt was not made in connection with a settlement agreement or divorce decree. The indemnification clause creates a new obligation at the time of divorce and is not dischargeable.
Can you discharge debts in Chapter 7 bankruptcy?
Federal law provides specific exceptions to discharge for marital debts. In a Chapter 7 bankruptcy, if the bill was either incurred during a divorce or separation or in connection with a marital settlement agreement, divorce decree or other court order, it is not dischargeable. This covers most bills and includes unsecured debt, such as credit cards, which are normally dischargeable. By contrast, this exception does not apply to Chapter 13 bankruptcy filings, which does allow discharge of unsecured marital debts, even those incurred during the divorce.
Does indemnification protect against discharge of co-signed debt?
This means that the indemnification provision would not protect against discharge of a co-signed debt. In fact, the only recourse a spouse has in this instance is to participate in the case and try to persuade the court that the debt is either a DSO or the repayment plan must include the debt to ensure the total amount to be repaid equals or exceeds that which would be recovered in Chapter 7 liquidation.
How does bankruptcy affect divorce?
Bankruptcy Can Affect a Divorce Settlement / Advantages, Disadvantages, and Misunderstandings of Bankruptcy. You can use a Chapter 13 plan to catch up on child support arrearage or spousal maintenance support (alimony) arrearage. If you have received a Chapter 7 bankruptcy discharge, you may still be obligated to relinquish to ...
What happens to your tax refund when you file bankruptcy?
JS: Because, when you file bankruptcy, the bankruptcy trustee takes control and possession of all of your assets until they are abandoned or are determined to be exempt. Certain portions of a tax refund may be exempt, but usually it is a non-exempt asset.
What happens when you get discharged from Chapter 7?
So, when people receive their Chapter 7 discharge, they sometimes forget about their non-exempt assets, because they might not have received their tax refund at the time they filed their case, but they have accrued their rights to at least a portion of their tax refund. That portion is what becomes an asset.
How long do you have to file Chapter 13?
CH: Sometimes people must file Chapter 13 case because it has been less than eight (8) years since they filed a previous Chapter 7 case, which renders them ineligible to file another Chapter 7 until it has been more than eight (8) years since the date of filing the previous Chapter 7 case. In other words, if they desperately need debt relief during that eight-year time frame, they must file for relief under Chapter 13 of the U.S. Bankruptcy Code.
Can you file Chapter 13 bankruptcy?
CH: You can file a Chapter 13 anytime, but a debt will not receive a discharge unless the new case is filed more than four (4) years after the filing of the previous Chapter 13 case. Also, some debtors are rendered ineligible for a Chapter 7 case because they earn too much money to qualify for a Chapter 7 case because of something called the Means Test. In other words, the computer program we use determines that a debtor has the ability to pay back a significant portion of their debt; therefore, they are not allowed to discharge certain debts in their entirety under Chapter 7 of the U.S. Bankruptcy Code. As a result, they must file a Chapter 13 case and pay back as much of their debt as they can afford during a five-year plan.
Can a Chapter 13 bankruptcy discharge a property settlement?
Because the obligation to the ex-wife appeared to be a property settlement, and because Chapter 13 of the bankruptcy code allows a debtor to discharge property settlement debts, I urged this particular client to file a Chapter 13 case, rather than a Chapter 7 case, so he could seek the discharge of this property settlement debt to his ex-wife.
Is alimony a nondischargeable debt?
There was absolutely no language in the agreement that indicated it was in the nature of alimony or maintenance. The reason that’s significant is that anything that’s in the nature of alimony or maintenance is a nondischargeable debt, whether you file for a Chapter 7 or Chapter 13 bankruptcy. (Child support is another example of a nondischargeable debt.) In this particular case, the Judge awarded $900 per month to the ex-spouse as a way to equalize the respective value of their respective retirement accounts, because his was worth more than hers.
How long before bankruptcy can you settle a divorce?
If a debtor signs a divorce settlement with a non-filing ex-spouse six months or less before filing bankruptcy, the debt settlement may be reduced by the bankruptcy trustee. However, if the debtor and the non-filing ex-spouse reach a divorce settlement six months or more before the bankruptcy filing, it is unlikely that ...
How does divorce affect bankruptcy?
When you file for bankruptcy, you want to ensure that there is a substantial net gain for you as you will now have the burden of rebuilding your credit. You want to make sure that all of your debts are discharged and the chances of passing those debts to your ex-spouse are minimized . Allmand Law Firm, PLLC offers expert representation in matters of bankruptcy. We can help ensure you get the best result when you file and begin to prepare for your financial future.
Have More Questions About Bankruptcy After Divorce?
If you have any questions regarding bankruptcy after divorce, we are always there to answer your questions. Feel free to call us or contact us today .
What happens when you file for divorce?
When you file for divorce, marital property is rolled into a marital estate and a determination is made as to who gets what property. On the other hand, debts are divided in the same way. You can use this during divorce negotiations to come up with an equitable solution, but the debt is separated in the same way that your marital property is.
What happens if an ex spouse files for bankruptcy?
If an ex-spouse decides to file bankruptcy after a divorce settlement, their finances will be taken over by the bankruptcy trustee. The bankruptcy trustee will be responsible for managing the debtor’s assets and distributing payments to creditors. An ex-spouse with a divorce settlement will be a claimant or creditor in the bankruptcy.
Can you file for bankruptcy with both spouses?
If both spouses file for a joint Chapter 7 bankruptcy, they can discharge all of their marital debt together and then proceed to divorce without having to worry about dividing marital debt. On the other hand, both spouses will now have the bankruptcy on their credit report.
Can a spouse declare bankruptcy?
In this scenario, the only way that the spouse declaring bankruptcy can discharge the debt entirely would be if the other spouse also declared bankruptcy. Further complicating matters, if the one spouse was ordered to pay off the debt as part of a property agreement, the debt cannot be discharged in Chapter 7 at all.
How to file for bankruptcy while divorce is pending?
How to file bankruptcy after a divorce. Collect your documents. Take credit counseling. Complete the bankruptcy forms. Get your filing fee and file your case. Mail documents to your trustee. Take bankruptcy course 2. Attend your 341 meeting.
What to do if divorce is not final?
If your divorce is not yet final, it may make sense to address debt relief and file for bankruptcy before divorcing. There are pros and cons to this, and it’s important to consider all of them carefully. First, as soon as you file a bankruptcy case something called the automatic stay goes into effect. This stops any other court proceeding from continuing until the bankruptcy is complete. The automatic stay does not stop the court from creating or enforcing any support payments. It does, however, include all other aspects of divorce cases and can cause a significant delay in completing that proceeding, so it’s important to consider your priorities.
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What is an indemnification clause in a divorce decree?
This means that one spouse is agreeing to make the other spouse whole if they suffer losses from a joint debt. For example, in a divorce decree, one spouse might agree to take on a joint car loan and indemnify the other spouse from any losses.
How long does it take to get a copy of a divorce decree?
Additionally, even though the divorce decree is not filed with the court, your case trustee will request a copy of it before your 341 meeting, which happens approximately 30 days after the case is filed.
How much does it cost to file for bankruptcy?
Once you’ve completed the paperwork, you’ll need to get together your filing fee. The current filing fee for Chapter 7 is $338 , which is due in full when you file your Chapter 7 bankruptcy case with the court. It’s the same amount for single and married filers. The payment must be paid by cashier’s check or money order, you can’t make this payment using a credit or debit card. If you feel that you can’t afford this fee, you can request a fee waiver, provided you are earning less than 150% of the federal poverty line, considering your combined household income. If the waiver request is not granted (or you do not qualify), you can also request to pay the filing fee in installments .
How many documents are needed to file for bankruptcy?
This can take a little time as there are usually more than 20 documents to complete, including your bankruptcy petition, all of the schedules, the statement of financial affairs (SOFA), and more. After a recent divorce, there are some specific details to note.
What happens to the income in Chapter 13 bankruptcy?
In a Chapter 13 bankruptcy case, the court determines how much disposable income the filer has to put toward his or her repayment plan. Filing for divorce and acquiring new financial obligations, like alimony and child support, will reduce the amount of disposable income an individual has available. This can alter his or her repayment plan and even ...
What to do if you are going through Chapter 13?
If you are working through Chapter 13 and considering divorce, or if you are going through a divorce proceeding and are considering filing for bankruptcy, talk to your bankruptcy lawyer about the specific ways you can expect the divorce to affect your bankruptcy.
Can you discharge alimony debt in bankruptcy?
You cannot discharge alimony debt or child support debt through bankruptcy. However, in certain circumstances, you can discharge other personal debts, like credit card debt and debt you owe your former partner for reasons other than alimony or child support, like buying out a share of your family home. Your lawyer can discuss which debts are dischargeable and which are not with you to help you determine whether bankruptcy is the right choice for your debt management.
Can a divorce court divide assets in bankruptcy?
The Divorce Court Cannot Divide Assets in the Bankruptcy Estate. When you file for bankruptcy, your non-exempt assets go into the bankruptcy estate. This is the pool of legal and equitable interests you hold at the time of the bankruptcy. Once property is in the bankruptcy estate, a divorce court cannot divide it between spouses.
Can a former spouse become a creditor?
A Former Spouse Can Become a Creditor. When a divorce settlement leaves one spouse indebted to the other, the spouse who is owed money can become a creditor in the other spouse’s bankruptcy case. This means that the debt the filing spouse owes his or her former partner is covered by the bankruptcy case and the owed spouse’s rights ...
