When a divorce is entangled with your Chapter 7 or Chapter 13 personal bankruptcy filing, thorough planning and timing are an integral component to legally keeping your assets protected from the bankruptcy trustee and creditors.
Obtaining the best outcome for both spouse partners is of paramount importance throughout the entire process. Since every divorce case is unique, it is difficult to give generalized advice in any concrete manner regarding the best course of action without a detailed evaluation of the circumstances in your individual case. This is another reason why hiring an experienced bankruptcy attorney is a must first step in any case, particularly those involving a divorce petition.
As with most of the legal aspects regarding divorce and bankruptcy it becomes imperative that both parties make a concerted effort to avoid the emotional entanglements that can so easily accompany a divorce specifically, and focus on how best your bankruptcy can benefit both parties.
The following 7 principles are important to understand before entering into divorce or bankruptcy proceedings, and may affect your bankruptcy timing and planning decisions:
- Generally speaking, if you don’t have any assets to divide, or joint credit card debt to allocate, and there isn’t child support or alimony issues, you need to file bankruptcy before your divorce.
- Bankruptcy proceedings only deal with debts and assets on the date you file for bankruptcy. If financial obligations are created by a divorce decree after the petition date, they will not be included in the bankruptcy.
- If you receive property in the divorce within 180 days, (6 months) of the bankruptcy you might lose it to the trustee.
- If you are to receive support obligations, such as child support or alimony when you file bankruptcy, all that money will be off-limits to creditors. But property division will probably not be exempt and therefore be subject to creditors.
- A bankruptcy court can overrule a divorce court decision regarding what is property division and which are support obligations.
- There is an inherent process that can create future debt accrued to either spouse partner.
- Property divisions completed prior to bankruptcy are debts that you can avoid. For example, if a divorce court orders a transfer of assets to one of you, insurers when your ex files bankruptcy. However, if a divorce court orders your extra transfer, the property and he hasn’t done so prior to bankruptcy he may be up to escape this kind of debt through bankruptcy.
The 2 Categories of Future Debt Creation Resulting From Divorce
1. Future Support Obligations
A divorce may create support obligations, usually referring to a commitment to provide for the necessary care, support, and maintenance of a dependent child or another person as required by law. Support obligations usually cannot be discharged in Chapter 7 or 11. Even though your individual situation is unique, generally you should plan on being held responsible for the following:
- Child support
- Health and life insurance coverage, medical expenses, birth costs, and child care or special child-rearing expenses.
- Attorney’s fees for your ex-spouse
- Some of the debts that your ex doesn’t have to pay
One positive aspect pertaining to the above obligations is that you may be able to better afford them because other debt will probably be wiped out in your bankruptcy.
As a side note, when filing for Chapter 13 bankruptcy, you can make up any amount overdue or delinquent that you may have accumulated before bankruptcy pertaining to support debts. However, if you don’t fulfill your Chapter 13 repayment plan as agreed upon, the court may dismiss your bankruptcy in total. Then all of your past liabilities and debts will come due, none are wiped out and all your creditors and your ex-spouse can come after you with the full force of law.
2. Future Property-Division Obligations
This type of debt is usually created to pay for part of jointly-owned property that the court may award your ex-spouse. The property may be real estate or something like part of your retirement plan. In either case, these may become long term liabilities or require liquidation, the selling of the property, family residence, etc. to satisfy the court’s instructions. In addition, the court may place a lien on your property to secure the payment.
A property settlement obligation can be erased with a Chapter 13, but not a Chapter 7 bankruptcy. Also, with the Chapter 7 filing, your personal debts may be wiped out, but you will likely still have to deal with any liens that were put on your property by the divorce court. This kind of lien may be avoided to the extent it impairs your homestead exemption and should be discussed with your personal bankruptcy attorney.
Careful due diligence should be exercised when dividing up a property before filing for bankruptcy. The trustee will probably look at the property settlement to be sure it was fair and equitable. If a property was divided in a way as to be grossly disproportional and unfair to creditors, the lien-holder or mortgage lender for example will then have the power to recover the property from your ex-spouse to satisfy the debt.
In conclusion please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.