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Bankruptcy in divorce


Bankruptcy can be filed before or after divorce. If both parties file pre-divorce you have a good situation as you have no debt to deal with. Things get complicated when only one party filed a bankruptcy. Things get complicated as well when only one party files for bankruptcy post divorce.

A married couple does not need to file a bankruptcy jointly. However, understand that so long as the parties are married then the non-filing spouse's assets are subject to the trustee just as would the filing spouse. Thus don't assume that the non-filing spouse is protected. Spousal support and child support arrears are non-dischargeable. Thus advise your client that he or she will be able to get out of an outstanding alimony obligation by filing for bankruptcy.

Property settlement awards are also non-dischargeable. Thus the payor spouse can't rid him or herself of her alimony, child support, or property division obligations

Per the Siragusa case if one party files for bankruptcy post divorce this may give rise to a motion to modify alimony by the other spouse. The reason for this of course is that the payor spouse now has a changed circumstance such that their expenses are not less than they were, leaving more available funds for satisfying alimony obligations. Of course this doesn't mean you can go back and get a dollar for dollar reimbursement. This is a common misperception amongst attorneys.

If you are in a position of advising you client as to when they should file for bankruptcy I suggest you advise that the parties both file for bankruptcy prior to filing for divorce. Of course if the parties wish to wait until post divorce this will typically not be problematic.

It is possible to file for divorce during a bankruptcy during a bankruptcy proceeding. The automatic stay of course will prevent any movement or distribution of property during the divorce. If you need relief for your client while a bankruptcy proceeding is ongoing you can file a motion to temporarily lift the automatic stay. Usually the bankruptcy judge will accept your motion and lift the stay for purposes of satisfying the divorce proceedings.

Also, there are times when clients will attempt to fraudulently transfer property by way of a divorce Decree. The party who transferred his or her property in the decree then goes on to file bankruptcy in an effort to protect property while at the same time realizing the benefit of the bankruptcy debt discharge. The bankruptcy trustee can see through this fraudulent transaction and seize the fraudulently transferred asset.

Categories: Family Law