The myriad financial pressures that accompany the breakup of a marriage often drives one or both parties to the brink of bankruptcy. Attorney fees, child support and new living expenses can quickly create a situation where a party to a divorce case cannot afford to pay his bills, including his most basic obligations and living expenses. This can lead to bankruptcy.
The Automatic Stay
Whether it's Chapter 7 (straight liquidation) or Chapter 13 (wage earner plan), a bankruptcy filing triggers an automatic stay against all collections proceedings. This includes actions related to community-property division or equitable distribution of marital property and debt. The state family court overseeing the divoice will be unable to make any orders regarding property that is also part of the bankruptcy or regarding the debtor's debt. The automatic stay does not affect actions related to child custody or child support or spousal support, except to the extent that the other party seeks to recover back support from property of the debtor that is also property of the bankruptcy estate.
What Bankruptcy Does and Does Not Discharge
Any debt that the debtor lists in his bankruptcy filing can be discharged, with several exceptions. The debtor may not be able to discharge certain debts arising out of a property settlement or property division in Chapter 7, and in neither chapter can he discharge child support, spousal support or student loans. In general, however, his credit card debt, judgments, foreclosure deficiency and personal loans can all be wiped out as part of his fresh start.
Effect Upon Other Areas of the Case
A bankruptcy can wipe out the other party's equitable distribution or community property division claim in some cases, eliminating a state court's ability to distribute marital property and debt. If the debtor obtains a discharge, however, this can influence spousal support. The discharge reduces his monthly expenses, making more income available for the payment of post-separation support and alimony. Saddling the other party with sole responsibility for discharged debts increases her monthly outlay, thereby increasing her need to receive support.
Effect Upon a Non-Filing Ex-Spouse
A debtor's current or former spouse is not required to join in his bankruptcy petition, even if the parties still have joint debts. When the debtor obtains a discharge of joint debts, the co-debtor spouse becomes solely responsible for those debts and the creditors will look to her for payment. The existence of a court order or separation agreement distributing the debt to the other party will not relieve her of responsibility to a creditor. This can devastate her credit and create a situation where she may be eligible to receive alimony.
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