“Bankruptcy & Divorce – Part I”

BANKRUPTCY & DIVORCE  – PART I

One of the principal causes of divorce is disputes over money and financial matters.  Unfortunately, these problems are usually exacerbated when a Complaint for Divorce is filed, as  in most cases, one of the parties to the marriage typically has to move out and start renting another place, has their own utility bills, must acquire some furniture, etc., while having to suddenly make child support payments on top of everything. In the meantime, the spouse who may have to stay at home is left with much less income than before. In many instances, this leads to one party or the other having to file for bankruptcy relief, as the monetary problems that led up to a divorce filing just got a whole lot worse.  While a bankruptcy filing may relieve the filing party from personal liability on most debts, and once a discharge is issued, that does not relieve any other obligor (typically the other spouse) from such liability to that particular creditor.  Thus, even if one spouse agrees to assume certain debts, if he/she does not pay them or discharges their personal liability thereon in bankruptcy, in many cases the liability for paying these debts then falls on the non-filing spouse.  When that happens, sooner or later, the spouse may be forced to file for bankruptcy relief as well.

When a divorce filing is made, the parties are still married until such time as a Judgment of Divorce is entered.  By statute, this cannot occur until at least 2 months after the Complaint for Divorce is filed, if there are no minor children involved, or until at least 6 months after the Complaint for Divorce is filed if there are minor children. While some divorces are very acrimonious, and the parties do not get along, as long as the parties are still married when the bankruptcy petition is filed, they can make a joint bankruptcy filing, thus saving on both attorney fees and the filing fee.  This may make sense in many situations.  However, this could also force a married couple to file a petition for relief under Chapter 13 ( a wage earner plan) if both parties work and their combined income is too high so as to be above the “mean” or average income for their sized household in their county of residence, as opposed to making a Chapter 7 bankruptcy filing ( a straight or liquidating proceeding). The professionals at Damon, Ver Merris, Boyko & Witte, PLC can assist in making these decisions.

In a Chapter 13 proceeding, the debtors are obligated to make payments to a Chapter 13 Trustee for 3- 5 years, out of their disposable income.  Thus, as opposed to being financially tied to a spouse that you may want to have nothing to do with, going forward, the parties may actually be better off filing separately, especially if they can each file under Chapter 7 as opposed to making a joint Chapter 13 filing.  In most cases, the additional fees for separate bankruptcy filings will be a fraction of what the parties may have to pay a Chapter 13 Trustee over 3-5 years in monthly plan payments.  Thus, the initial cost savings through making a joint filing may very well be outweighed by the continued “emotional” ties as well as the possible additional payments, over time, if the parties have to file a Chapter 13 proceeding.

That being said, the cost alone should not be the sole factor to consider in making a bankruptcy filing.  If one party or the other desires to save the marital home, so they and their children can continue to reside there, and to cure any arrearages over time, strip off liens, or reduce what has to be paid on an auto loan to the present fair market value of the vehicle (not what is owed), then a Chapter 13 filing may be in order even though that party may qualify for Chapter 7 relief and the cost may be higher than a Chapter 7 filing.

Making a wise decision about whether to file for bankruptcy relief, whether it should be a single or joint filing, and the Chapter under which to file, are all complicated matters, especially if the parties are in the midst of a divorce.  Our knowledgeable attorneys deal with these issues on almost a daily basis and can guide you through this potential mine field.  Don’t take chances; contact the professionals at Damon, Ver Merris, Boyko and Witte, PLC, we are here to help.   – Larry A. Ver Merris / October 6, 2017

While this posting originates from a law office, none of the contents should, in any way, be considered legal advice. If you have not signed a retention letter describing the legal services to be provided and the amount to be paid for such services, you are not a client of this firm.