Divorce and Bankruptcy

Divorce can play havoc with finances and may even force you to file bankruptcy.  When coming out of a divorce it is not uncommon to find yourself with new overwhelming financial obligations such as alimony, child support and other debts assigned to you by your Final Judgment.  Bankruptcy may be able to help ease this pain and it’s important to understand how.

While, as a general rule, bankruptcy will discharge or get rid of all of your debt, there are a few types of debts that you cannot discharge.  One non-dischargeable debt is a Domestic Support Obligations, which are debts or obligations owed to a spouse, former spouse or your child that are in the nature of alimony, maintenance, or support.  You will not be able to avoid these debts in any form of bankruptcy and cannot be modified or altered by the bankruptcy court.

However, you may also incur debt in a divorce that is not in the nature of support, alimony or maintenance and which may be discharged in Chapter 13 bankruptcy.   These debts or divorce obligation involve property distributions designed to divide marital property or assets between you and your ex.  For example, during your divorce you agreed that your ex-husband could have a particular car in exchange for paying you $5,000 by a certain date.  He took the car but before paying you, he files Chapter 13 bankruptcy and classifies you as an unsecured creditor.  Because the $5,000 owed to you is not a form of support, and is merely a property division, the debt will not be exempt from discharge and your ex will likely not pay you everything you are owed.  In this example, after receiving notice of the bankruptcy you will be required to file a Proof of Claim with the bankruptcy court asserting your right to the $5,000 distribution.  The bankruptcy trustee will then pay you small amounts each month over the next 5 years, after which anything still owed to you will be discharged.

Whether contemplating bankruptcy or divorce it is important to understand how the two interrelate and what your rights might be.  At Matthew C. Bothwell, P.A. we are here to answer your questions on divorce or bankruptcy and are only as far away as you telephone.  Please give us a call if you have any questions.  We are here to help.