Divorce and Bankruptcy: The Initial Questions and Answers
Here are the direct answers to some important threshold questions about bankruptcy involving divorce.
Q: If you and your spouse are considering getting divorced, can you both still file a bankruptcy together?
A: Yes, as long as you are still legally married you can legally file a joint bankruptcy. But whether you should is not a simple question. Sometimes it’s a wise step. Other times it could be a disaster. At the very least, you and your about-to-be ex-spouse should get thorough, independent legal advice about it.
Q: If you are still legally married, can one of the spouses file bankruptcy alone before the divorce, either acting alone or to clear away marital debt if most of the debt is in one spouse’s name?
A: Either spouse can file bankruptcy alone regardless of marital status. If the intent is to clear away all or most of the marital debt because it is solely in that person’s name, be extremely careful about that assumption. Definitely in community property states, and even in the other states, the non-filing spouse may well be legally liable on many more debts than he or she expected. Again, even if the intentions are honorable, and especially if they may not be, never make this decision without both spouses getting independent legal advice about it. This means each of you discussing their situation with your own separate attorney who is looking out for your individual interests.
Q: If you and your spouse have already filed a joint bankruptcy case within the last few years and you now get a divorce, will that affect when either of you can file a new bankruptcy case?
A: No. The rules about filing a new bankruptcy case after having filed a previous one turns merely on what kind of case—Chapter 7, 11, 12, or 13—you filed earlier, and what kind of case you intend to file now. Two cautions. First, make sure you verify that you both were legally named as a debtor in the previous case. Second, the previous case must have resulted in a discharge of your debts—essentially it must have completed successfully—or else you don’t have to wait any period of time. Most likely you will know whether you were legally named as a debt and whether you got a discharge, but be sure to verify these both with your current attorney.
Q: If you and your spouse are currently in an ongoing Chapter 13 “adjustment of debts” case, can you both, or can just one of you, get out of it?
A: Yes, there are many ways for one or both of you to get out of your joint Chapter 13 case. The entire case can almost always be dismissed for any sensible reason. From there, each person can then decide what is best for him or her—a new Chapter 13 case, or instead Chapter 7 “straight bankruptcy” case, or neither. Or your joint Chapter case can be converted into a joint Chapter 7 case to get it over with much more quickly and still get a discharge of many of your debts. Or your joint Chapter 13 case can be “severed” into two separate Chapter 13 ones. Then each person can independently do whatever you want to do with your new separate case—amend it to meet your own new circumstances, convert it into a Chapter 7 case, or dismiss it altogether.
Q: What happens if one of you files a separate bankruptcy case after the divorce case has been filed in court?
A: Some aspects of the divorce case would be stopped from proceeding because of the “automatic stay” imposed by the bankruptcy filing, at least temporarily, while other aspects of the divorce case could continue unaffected. Particularly, what could continue would be determinations about child and spousal support, along with enforcement of ongoing support; matters involving child custody visitation, paternity, and domestic violence; as well as the actual dissolution of the marriage other than the division of property and debts. It’s that crucial part of divorce involving the division of property/debts that would be stopped, or “stayed,” by the bankruptcy filing.
In the next few blogs we will expand on these answers.