Should I Get a Divorce Before Declaring Bankruptcy?
Bankruptcy and marital breakup often go hand in hand. The financial pressures of attorney fees, support payments and the sudden disappearance of a spouse's income from the household can drive even the most financially responsible party into the poorhouse. Regardless if an absolute divorce first has no effect upon your bankruptcy, you should understand how bankruptcy affects the rest of your case before you file.
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Different Forms of Bankruptcy
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In a Chapter 7, or straight liquidation bankruptcy, your non-exempt assets are sold and the proceeds applied to your outstanding debts, after which you get a discharge of many, if not all, of your remaining debt load. In a Chapter 13, or wage-earned plan, you must make payments for a period of years. These payments are distributed pro rata to your creditors in priority order. Generally, each creditor receives only a fraction of the outstanding debt. After the successful completion of your plan, you get a discharge of remaining eligible debt.
How Bankruptcy Affects Your Spouse
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Bankruptcy affects your spouse in much the same way whether you're together, separated or divorced. Regardless of your marital status, she isn't required to file with you. If you file for bankruptcy protection, an automatic stay will go into effect as to all of your creditors, meaning they won't be able to collect from you. After discharge, your debts become uncollectible. This only affects your spouse to the extent that the two of you have joint debts. Unable to pursue you, joint creditors will now look solely to her for payment.
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How Bankruptcy Affects Property Division In Your Separation Case
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Whether you live in an equitable distribution or community property state, bankruptcy will affect the property division phase of your separation case in much the same way. A property division claim can be discharged in Chapter 13 bankruptcy provided the other party has proper notice. Recent changes to the bankruptcy law have limited your ability to get rid of these claims in Chapter 7; although you can discharge your responsibility to creditors, you generally can't discharge your debt responsibility to a current or former spouse. If you're going to file bankruptcy on your own, you should probably separate first. That way, you have a greater chance of bankrupting the other party's property division claim.
How Bankruptcy Affects Support Issues
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Your alimony and child support payments can be used in Chapter 13 to reduce your available income for paying on debts. Going the other way, your bankruptcy will probably not affect child support, as state guideline systems typically don't consider anything but child-related expenses and gross income. Bankruptcy can affect alimony, however, since alimony amount depends in large part upon the need of the dependent spouse and the ability of the supporting spouse to pay. A depended spouse who receives a bankruptcy discharge won't need as much alimony to stay afloat with all those debts gone; a supporting spouse who doesn't have to pay all of his debts will have more income available with which to pay alimony.
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