Divorce and Bankruptcy: Filing for Bankruptcy during a Divorce

Divorce and bankruptcy have serious effects on each other, especially with regard to property and personal finance. When the marriage partners have overwhelming debts and are heading for divorce, bankruptcy may be a way to deal with the financial issues. Bankruptcy may be filed by only one spouse or jointly. The effect of bankruptcy on divorce proceedings is abrupt. An automatic stay stops all activities on divorce proceedings.

Need for Both Divorce and Bankruptcy Lawyers

Going through bankruptcy and divorce together may cause quite a bit of confusion and many complications. It will be best to find a bankruptcy lawyer at once to properly guide you, along with the lawyer who is helping you with your divorce. Having expert guidance with property settlements, alimony, child support and other financial issues is very valuable when you are undergoing bankruptcy and divorce at the same time.

Filing for Joint Bankruptcy during Divorce

Filing jointly for bankruptcy is an option if you share a large amount of debt. This may even make the divorce settlement much simpler, and filing bankruptcy jointly is cheaper. Filing individually for bankruptcy will make the creditors go after your spouse.

Marital or Community Property

All property accrued during marriage is marital or community property. If you are filing jointly for bankruptcy and your spouse has marked some of your separate property as marital property, first of all, you should prove that what is yours is not community property. The bankruptcy court will release the exempt property, and the remaining community property will be part of the bankruptcy estate and used for paying debts.

Property Settlements

Once the bankruptcy court has determined which property is exempt from bankruptcy, the divorce court can divide the property between the spouses equitably. The non-exempt property will be sold by the bankruptcy trustees to pay off debts.

If under the divorce settlement you word the property settlement as a support obligation instead of a property settlement, then what would otherwise be called your property settlement cannot be discharged in bankruptcy.

Property Liens

Another way to avoid financial loss on account of your spouse's debt is to attach a property of your spouse as a security lien. The lien on the property will allow you to seize the property and use it to pay off your spouse’s loan if he or she is thinking of escaping but letting you pay. The property with a lien may fetch less than the market price, but this is still a way to protect yourself. This can also be claimed as a support payment if your spouse does not pay the support as per court order.

Indemnity Clause

You can incorporate an indemnity clause into the divorce decree. This will help protect you from creditors who are coming after you to pay for your ex-partner's debts after the divorce. If your spouse files for bankruptcy, the judge will enforce it to protect you.

With the help of a good bankruptcy lawyer and a divorce lawyer, you can successfully manage divorce and bankruptcy at the same time.

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