Bankruptcy After Divorce 11

The divorce process can often be emotionally (and financially) draining. At the end of the long road, you have a settlement agreement and/or a divorce decree by which you are prepared to abide. And then your ex-spouse decides to file for bankruptcy protection.

What now? The bankruptcy process as an ex-spouse and creditor can be similarly emotional and financially difficult. The basic information about post-divorce obligations and bankruptcy though can do much to set your mind at ease.

What Happens to Payments After an Ex Files for Bankruptcy

When your ex-spouse files for bankruptcy, all efforts to collect any debts must stop pursuant to the court’s automatic stay. All creditors must cease collection activity pending the resolution of the bankruptcy case unless they fit into an exception or are granted special permission by the court. A court proceeding to establish or modify a support award need not stop under the stay order, according to federal law.

In a Chapter 7 filing, support can still be collected from post-bankrupcty-filing income of the debtor as those funds are not considered part of the bankruptcy estate. In a Chapter 13 filing, in which the debtor restructures debt and establishes a payment plan, post-filing income is still considered part of the bankruptcy estate and cannot be touched.

How Bankruptcy Affects Support Obligations

Child support and spousal support are NOT dischargeable in bankruptcy. Even if a large arrearage exists at the time of the bankruptcy filing, it will not be wiped away.

Further, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (bankruptcy reform legislation), unpaid child support and alimony is given priority over any other debt, including taxes owed. A spouse who is owed back support must file a “proof of claim” like every other creditor in order to receive payment.

(The spouse receiving support will receive written notice of the bankruptcy filing as will the state support enforcement agency. If you are NOT provided with official notice but hear about the bankruptcy filing, don’t ignore it. Consult an attorney immediately to protect your rights.)

Bankruptcy’s Effect on Property Settlements

Under the old bankruptcy law, property settlement obligations and obligations to pay for debts in a divorce decree were generally dischargeable in bankruptcy. There was a statutory balancing test applicable when deciding if such an obligation should not be discharged. In the reformed bankruptcy code, however, this language was drastically changed.

Now, any obligation to a spouse, former spouse or child incurred in the course of a divorce or separation, by settlement agreement or divorce decree, is NOT dischargeable. This applies to property settlement obligations in which one spouse is required to pay the other some sort of equalization payment. It also applies to obligations to pay debt as ordered in a divorce decree. It doesn’t prohibit the debtor from obtaining a discharge of the debt from the creditor, but prohibits the debtor spouse from discharging any indemnification or hold harmless provision provided in the divorce decree or settlement agreement.

Going Back to Divorce Court After Bankruptcy

Although the new bankruptcy laws will keep your entitlement from being discharged, you may still need to return to family court after your ex-spouse’s bankruptcy.

If the filing spouse was obligated to pay a joint debt which was then discharged in bankruptcy, the non-filing spouse may still be on the hook for the debt as far as the creditor is concerned. If that is the case, you may need to return to the divorce judge to enforce an indemnification or hold harmless provision in the divorce decree. A motion to modify can be filed, asking for establishment or increase of spousal support to cover the additional debt amount you may now be obligated to pay to the creditor.

On the flip side, if you are the support-paying spouse who has proceeded through bankruptcy, you may choose to present your current financial situation to the court and seek a downward modification of support. Arrearages can add up quickly so don’t delay this request if you are having legitimate trouble paying your support obligations.

Just as in the original divorce process, the post-divorce bankruptcy process is wrought with emotion and complicated legal requirements. As always, it is best to consult an attorney to help steer you through.

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Discussion

  • kelly

    i was divorced in 2007 and court ordered to pay her 276 per mo for ten years due to her and my income at that court date! Since then i am currently having to file ch7. I still make more then she does she being on disability social security…but the ch7 plan looks like after i pay her i will have like 1.49 cents left over for any emergeny. I have proof she paid off a home loan of over 60 thousand and i feel sure her mom gave her the money for this. my question is based on just the facts above do i have any chance of wining a motion to decrease my maint payments to her with the court in kansas while i am living in alabama ? would i have to appear in the kansas court to even try? could it back fire and be ordered to pay more? thanks

  • Danielgrooth

    Since my soon to be ex-wife racked up over 50K worth of credit card debt behind my back while we were married, my lawyer suggests that we file for joint bankruptcy.
    I’m not crazy about the idea due to the downstream consequences…it stays on your record for 7 yrs., insurance co’s adjust your rate by credit score, renters wont sign a lease with you, etc.
    Cho Yung Tea

  • meg sodai

    i am divorced for 3 years and want to file for bankruptcy to get rid of medical debt of over 50,000 but don’t want my ex to get stuck with it . will he??

  • http://choyungteaprocleanse.info DG

    Also I inherited debt from my soon to be ex wife from a previous bankruptcy filing that she neglect to tell me about.. how can I get rid of this?

  • http://www.dadsdivorce.com/ Advice for Divorce

    DG, you should talk to your lawyer.

  • AKinNJ

    Are there any legal grounds for me to try to obtain equitably distributed assets that were discharged from my ex-spouse’s bankruptcy? We were divorced in 2003. I have 3 separate court orders that were filed over a year’s time ordering him distribute to me these assets. Increasing penalties have been described in each order. My ex ignored all of these and filed for bankruptcy in 2004. Can I show intention of fraud? Or, can I apply the new “non-dischargeable” rules going back in time?

  • susan

    Is there a statue of Limitations on filing property settlement aggreement after a couple has filed for divorce. And one of the persons has gone through a bankrupcy?

  • ms. m

    Hoiw long do you have to wait after a bankrupcy before you may file for divorce? Can you file after the first court date or do you need to wait for discharge?

  • Connie W.

    My Husband and I divorced in December 2003, He filed bankruptcy in January 2004. Does that mean that this is on my record as well even though I did not know he did this after we were divorced?
    I just paid my house off in full in 2012. I am debt free. Will that be on my record if I need to buy a new caror anything else I buy when the business looks up my credit score?

  • tp

    My ex husband from a 30 year mariage was ordered to sale house and give me 1/2 of profit. After 3 years of divorce he was still renting home and had not sold it. The mortgage is in his name but my name is on title. Just was informed that he let the house go into foclosure, will this be on my credit the original loan was in my name but house was refinanced before divorce in his name only

  • Pam

    My ex husband had consigned me on a student loan that i didn’t know about until after the divorce was final. Now he is filing bankruptcy and i was wondering how it will effect me? I didn’t charge him with fraud yet because of out two children. But I want to know if that is the only way out the mess he made?