Divorce is already a stressful and complex process, but when financial challenges are involved, the situation can become even more complicated. Many individuals going through a divorce find themselves facing overwhelming debt, and bankruptcy can be an important part of the solution. Whether you are the one filing for bankruptcy or your spouse is, understanding the role of bankruptcy in the divorce process is essential. In this blog post, we’ll explain how bankruptcy affects property division, debt obligations, and the overall divorce process.

The Intersection of Bankruptcy and Divorce

1. Bankruptcy Can Help Discharge Debts

One of the primary benefits of filing for bankruptcy during a divorce is that it can eliminate or restructure certain types of debt. Whether you file for Chapter 7 or Chapter 13, bankruptcy can provide relief from the debts that might otherwise divide your financial resources in a divorce settlement. This includes unsecured debts like credit card bills, medical expenses, and personal loans.

In a Chapter 7 bankruptcy, most of your unsecured debts are discharged, meaning they are legally wiped away, allowing you to start fresh. If you’re in a Chapter 13 bankruptcy, your debts are reorganized into a payment plan, which can also lower monthly obligations and provide relief during the divorce proceedings.

2. Impact on Property Division in Divorce

The division of property and assets in a divorce can be a contentious issue, especially when one or both spouses have significant debt. In California, property division follows the principle of “community property,” meaning that most property acquired during the marriage is divided equally between the spouses.

However, bankruptcy can change the way property is handled in a divorce. If one spouse files for bankruptcy before the divorce is finalized, the bankruptcy court may use the individual’s property as part of the liquidation or repayment process. Additionally, debts that are discharged in bankruptcy may affect the value of the assets that remain for division between the spouses.

If you are in the midst of a divorce and contemplating bankruptcy, it’s important to understand how the bankruptcy court might address assets and debts. Depending on the timing of your filing, you could face different outcomes in terms of asset division.

The Timing of Bankruptcy Filing in Divorce

1. Filing Before or After Divorce

The timing of when to file for bankruptcy during a divorce can significantly affect the outcome of both the bankruptcy and the divorce proceedings. If you file for bankruptcy before the divorce, it can help you discharge some of your debts, making the division of debts easier to manage. It can also prevent creditors from pursuing either spouse for unpaid debt after the divorce.

Filing Before Divorce: If one spouse files for bankruptcy before the divorce, it may discharge certain debts, giving that spouse a fresh start. However, the spouse who is not filing for bankruptcy may still be responsible for debts that were jointly held.

Filing After Divorce: Filing for bankruptcy after the divorce is finalized can be more complicated. You may still be responsible for the debts that were assigned to you in the divorce decree, and bankruptcy won’t necessarily eliminate those obligations. If the bankruptcy is filed after the divorce, the division of assets and debts has already occurred, but bankruptcy could impact your ability to make payments.

How Bankruptcy Affects Alimony and Child Support

1. Bankruptcy Won’t Discharge Alimony or Child Support

It’s important to note that certain debts, including alimony and child support payments, are not dischargeable in bankruptcy. No matter what type of bankruptcy you file, you will still be required to pay any existing alimony or child support obligations. These debts take priority and are protected from discharge under both Chapter 7 and Chapter 13 bankruptcy.

Therefore, if you are in a divorce and bankruptcy is part of your financial strategy, you should be aware that these obligations will continue to be enforceable, regardless of your bankruptcy status.

The Role of a Bankruptcy Attorney in Divorce

1. Expert Guidance in Complex Situations

Given the complexities of bankruptcy and divorce, it’s crucial to work with an experienced bankruptcy attorney who understands how both processes interact. A bankruptcy attorney can help you determine whether it’s better to file for bankruptcy before or after the divorce, assess how bankruptcy might impact your debts and property, and advise you on how to handle any financial obligations post-divorce.

A skilled attorney from Winterbotham Parham Teeple, a PC can also help protect your interests during the divorce by ensuring that any financial settlements are fair and manageable, considering the impact of any bankruptcy filings.

Take Control of Your Financial Future Through Bankruptcy in Divorce

If you are navigating the challenges of a divorce and struggling with debt, bankruptcy can provide a path to financial freedom and a fair division of property and debts. Filing for bankruptcy during or after a divorce may offer significant relief, allowing you to address your financial challenges and move forward with a clean slate. However, the timing and approach of bankruptcy are crucial, and working with an experienced bankruptcy attorney can ensure that your financial future is protected.

If you’re going through a divorce and considering bankruptcy, contact our experienced bankruptcy attorneys at 800.400.9000 today for guidance. We can help you navigate this complex process and ensure that you make the best decisions for your financial future.