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Can You File Bankruptcy During Divorce

Do I Still Have To Pay Child Support If We Get Divorced

Can I file bankruptcy during a divorce? – Ogden Bankruptcy Lawyers

Filing for bankruptcy before, during, or after divorce will not change an individuals obligations to pay child support or alimony. Even during bankruptcy proceedings, when attempts by collectors are immediately halted, domestic support payments must still be made. Chapter 13 bankruptcy allows parents whose child support payments are in arrears to prioritize catching up on those payments before paying for certain other debts, such as taxes. In this way, filing for bankruptcy may allow someone to avoid jail time while they catch up on delinquent payments.

Understand Your Home’s Value

Your home is likely your biggest investment, and one of the highest-conflict issues in divorce. Locate your mortgage statement, understand whose name is on the note, the interest rate, and remaining balance. To understand whether you can afford to keep the home, or whether it makes sense to sell, calculate property tax, home association fees, utilities, repairs and maintenance .

Then, research your home value on Trulia or Zillow, to calculate any equity you have in your home .

Basic Information About Chapter 7 And Chapter 13

An individual can file for bankruptcy relief under different chapters . Although an individual can file under Chapter 11 or Chapter 12 of the Bankruptcy Code, an overwhelming majority of individual debtors file either Chapter 7 or Chapter 13 bankruptcies.

When an individual files a bankruptcy, the most basic reason is to eliminate debts by receiving a discharge. In a Chapter 7, the individual eliminates unsecured debts and keeps property that is exempt. In a Chapter 13, the debtor proposes a plan to pay back certain types of debt over a three to five year period, can catch up delinquent loans on secured property, and can keep non-exempt property. In either a Chapter 7 or 13, the debtor receives an order at the conclusion of a successful case that discharges any remaining debt. However, some debts may be non-dischargeable, and high among the non-dischargeable debts are debts related to divorce.

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Why Is It Crucial To Consult With An Experienced Bankruptcy Attorney During And Following A Divorce

Both during and after a divorce , you need the advice of a skilled, experienced California bankruptcy lawyer to protect your financial future.

There are many pitfalls that can occur when bankruptcy and divorce meet up, and only a knowledgeable lawyer can help you avoid them all.

For example, if your spouse files for bankruptcy and you don’t, you could see a lawsuit filed against you by creditors of what was formerly jointly held marital debt. Whether you are unwilling to pay or simply unable, they could attempt to garnish your wages or impose bank levies to access your bank account.

You could face paying large sums for your ex’s lawyer’s fees. If you spouse’s car gets repossessed, and they sell it at auction but money is still owed on it, you could become liable for the full difference.

Even if your spouse ran up a credit card alone, because the card and debt was jointly held, it was joint debt. But if your spouse then files for bankruptcy, and you don’t, you could face having to pay the full amount on the card.

These are only a few common examples, but the point is you need a good bankruptcy lawyer to protect you during a divorce. It may be you need to file Chapter 7 or 13 and if so, you need to claim the right exemptions or restructure your debt in the right way. Or, you may just need advice on what to do after you spouse or ex-spouse filed bankruptcy.

Sort Through The Complications With Confidence

Claiming Bankruptcy During Divorce

In all the many ways that divorcing can affect bankruptcy, and vice versa, the common theme is intricacy. You will need to know what you are doing, where your end goal remains, and how it is going to affect your family. Let Holstrom, Block & Parke, APLC and our Southern California divorce attorneys be the ones to help you make sense of the complexities and make the decisions that benefit you most.

300+ years of combined legal experience can be on your side contact us today.

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If My Husband Files For Bankruptcy Can I Still Enforce The Terms Of The Divorce Judgment

Section 523 of the Bankruptcy Code now makes all support obligations non-dischargeable in all chapters. In addition, all property settlement debts owed to a spouse, former spouse, or a debtors child are non-dischargeable in a Chapter 7. Therefore, a non-debtor spouse is no longer technically required to file an adversary complaint to block a debtor spouse from trying to bankrupt debt owed under a property settlement agreement. However, it still makes sense for a non-debtor spouse to file an adversary complaint. A non-debtor spouse should be completely certain that the debtor ex-spouse does not discharge marital debts owed under the agreement. Due caution should be exercised until the bankruptcy laws on these issues are settled.

The ability to pay and the balancing tests have been eliminated from Section 523 of the Bankruptcy Code, and Section 523 of the Code was amended so a property settlement discharge proceeding is no longer required to be brought into the bankruptcy court. It is important to emphasize that these types of debts still remain dischargeable in a Chapter 13 case. Therefore, most future bankruptcy litigation over family law debts will be contested in a Chapter 13 case rather than a Chapter 7 case.

When Does It Make Sense To File For Divorce Before Bankruptcy

The main case for filing for divorce before bankruptcy has to do with meeting the qualifications in your state for Chapter 7 bankruptcy. In contrast with Chapter 13 bankruptcy, which cancels certain types of debt but requires negotiating with creditors to structure a yearslong repayment plan, Chapter 7 cancels qualifying debts altogether. To meet the qualifications for Chapter 7, your income must fall below than that of the median for your state. In households where one spouse earns most or all of the income, completing a divorce before filing for bankruptcy can enable both parties to qualify for individual Chapter 7 bankruptcies.

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Can A Spouse Escape Support Or Alimony Via Bankruptcy

Any support, whether it is called family support, alimony, orchild support, is made non-dischargeable in bankruptcy by the Bankruptcy Code.The spouse who receives the support does not have to file any type of proofs ofclaims or objections to the Bankruptcy Court to enforce her rights to continueto receive support. In most cases, once a debtor files for bankruptcy, allcreditors must stop all actions to collect their debts. This block is called an”automatic stay.” The automatic stay stops all foreclosures, garnishments, banklevies, and creditors from calling you at all hours of the night. The automaticstay does not apply to the enforcement of the collection of child support oralimony. These types of obligations have a super priority under the BankruptcyCode.

What About Retirement And Life Insurance Accounts

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Things can also get complex when it comes to retirement accounts, like IRAs and 401Ks, as well as with whole life insurance policies that have a cash value.

There are many specific rules that apply here, but the general thrust is that most retirement accounts and life insurance plans are exempt in a California bankruptcy. There can be exceptions, however, if you recently made deposits to a retirement account, or if you exceed the cash value exemptions limits for your life insurance plan.

Divorce may impact how your life insurance and/or retirement plan payments are ultimately disbursed, but bankruptcy doesn’t usually have much of an impact in this area. Still, to be safe, it’s best to consult a bankruptcy lawyer who can review these issues and make sure you won’t lose your retirement, won’t lose the cash value of your whole life policy, and your beneficiaries won’t lose the death benefit when you pass away.

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My Spouse Has Just Filed For Bankruptcy In The Middle Of Our Divorce Case What Do I Do Now

Living in California is expensive, and divorce can be even more so when bankruptcy is involved. A divorce can trigger a bankruptcy filing for a multitude of reasons, and it quite often turns into a supreme mess. There is no clear winner and loser in a divorce case, so all parties should try to achieve a compromise and reach a fair property settlement agreement. In many cases, a bankruptcy can help out both spouses if they joint file.

If an ex-spouse files for bankruptcy, the family court can still hear testimony and decide issues relating to support. However, the court requires stay relief for equitable distribution, which involves the bankruptcy court permitting the divorce case to continue. Basically, the family court wont split up the family home, divide pensions, or apportion any stocks or mutual funds until it receives permission from the bankruptcy court.

What Can You Do To Avoid This

Although a joint debt cannot be eliminated by a divorce or separation agreement, there are options available for dealing with the joint debt a spouse may be responsible for when the other spouse files for bankruptcy:

  • Ask the bank or lender to remove one spouse from any debt they co-signed or guaranteed. This includes joint credit cards.
  • Ask your bank or lender to split the joint debt into two new loans, one in each of your names.
  • If your lender is unwilling to do either of these things, or neither you nor your ex-spouse can afford to repay the debts, then:
  • the spouse left with the debt can file for bankruptcy

    the spouse left with the debt can file a consumer proposal

    both spouses can file a joint bankruptcy or joint consumer proposal

  • If you have a joint secured asset, such as a car or home, you may be able to make arrangements with your creditors to keep the asset if you are able to afford the payments. If you cannot afford the payments or would like to surrender the equity you have in the secured asset, it will have to be sold.
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    What Happens To Personal Assets If You File For Bankruptcy While Getting A Divorce

    What happens to unsecured assets in the case of both a bankruptcy and divorce, depends on which process occurs first, and who has rights to the assets at that time.

    If bankruptcy first:

    If someone files for bankruptcy first, their assets are transferred to their bankruptcy estate and are no longer available for distribution to their ex-spouse.

    If separation or divorce first:

    If assets are transferred to an ex-spouse as part of as part of the divorce agreement or legal separation agreement before the person files for bankruptcy then those assets are no longer available to creditors in the bankruptcy.

    Dont File For Divorce And Bankruptcy At The Same Time

    When You Should File for Bankruptcy During a Divorce ...

    For the sake of simplicity, the two legal matters shouldnt overlap with each other. Commonly, people choose to file bankruptcy before going through with a divorce and there are several logical reasons for that. Once bankruptcy is filed, for both chapter 7 and chapter 13, an automatic stay is put into place. The automatic stay halts creditors from contacting you and puts a freeze on your assets and property this is so the bankruptcy court can begin sorting out what debts you owe and what assets you have that can help compensate for some of it. This hold is effective throughout the bankruptcy process.

    Now lets say, you filed for bankruptcy and then immediately filed for divorce, causing the two to overlap. Since a large part of the divorce process is splitting up assets , the automatic stay would make it virtually impossible for the family court to access and divide the assets, since they are put into a hold. Because of this, the divorce could be dragged out longer than necessary and become more emotionally stressful for you or your loved ones.

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    Filing For Bankruptcy After Your Divorce: Pros And Cons

    Some people choose to file for divorce first and then to file for bankruptcy after their divorces have been finalized. This might be advantageous if you either plan to file for Chapter 13 so that you can retain more of your property or if you dont qualify to file for Chapter 7 bankruptcy because your income is too high. However, if you and your spouse both need to file for bankruptcy, waiting until after your divorce is final means that you will each have to pay your own filing fee for your bankruptcy petitions, which means that you will ultimately pay more in legal fees.

    Waiting until after your divorce to file for bankruptcy protection may also be beneficial if you and your spouse cannot get along. If your divorce is filled with conflict, it may be best to wait until the divorce is final before you file for bankruptcy. This can allow you to seek a discharge of your debts without having to depend on your spouse working together with you in your bankruptcy case.

    What Happens To Spousal And Child Support Payments During Bankruptcy

    Under the Bankruptcy & Insolvency Act, bankruptcy will eliminate most of your unsecured debts but will not eliminate spousal support or child support payments.

    Spouse paying spousal or child support:

    In most cases, if the terms of the divorce or separation agreement agree to give one spouse certain assets in return for continuing to make support payments, and the paying spouse then files for bankruptcy, they will lose the assets. Spousal and child support payments, however, still have to be made.

    Spouse receiving support or alimony:

    Spouses owed back support payments can make a claim in their ex-spouses bankruptcy and receive a share of any dividend paid from the estate. Any alimony or support arrears for the 12-month period before the date of bankruptcy are considered a preferred claim and are paid out of the proceeds of the bankrupt before any other unsecured claims.

    Any support amounts left unpaid are still owed by the paying spouse as those payments survive bankruptcy.

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    Should You Pay Your Bills Before You File Bankruptcy

    Your financial situation has become untenable, and youve decided to file bankruptcy. Should you keep paying bills that you hope to discharge anyway? It depends on what kind of debt the account is.

    It may be all right to stop paying certain kinds of unsecured debt before bankruptcy, such as:

    • Payday loans
    • Lines of credit

    Since these debts will be discharged, you may be better off saving the money to repay obligations that cant be discharged. These include secured debts, where the creditor can repossess the asset if you fail to keep up with payments or obligations like spousal and child support.

    Its important to remember that bankruptcy is for honest debtors who find themselves unable to repay their creditors. If there is evidence that you took advantage of the system, such as borrowing large sums immediately before filing, you may not be able to file bankruptcy or discharge those particular loans. Even preferential repayments, where you repay personal loans from friends or family while ignoring other creditors, can be an issue. Preferential payments may even be undone in the bankruptcy process.

    Chapter 7 Is Ideal For A Quick Divorce

    Can I file bankruptcy during a divorce – Bankruptcy Lawyers Claremont

    One of the benefits of chapter 7 bankruptcy is the timeline of the process. Chapter 7 eliminates all dischargeable debt typically within three to six months, allowing you to file your divorce sooner if you choose to file bankruptcy first. In comparison, chapter 13 bankruptcy sets up a three- to five-year payment plan instead of completely eliminating debt, and can possibly drag your divorce or separation out longer than necessary.

    If you are involved in a chapter 13 bankruptcy and decide to file for divorce during the repayment period, you can choose to cancel or restructure the bankruptcy plan. By canceling, you agree to stop the agreed upon payment plan however, all debt you and your spouse have assumed will still be your responsibility. If you choose to restructure the plan, it divides the plan into two cases one for you and one for your spouse you can then handle the bankruptcy separately from your partner. These cases can become complex if not handled properly and can cause a lengthy divorce if anything goes awry. Its always best to speak with a bankruptcy attorney to see the best course of action for your situation.

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    Bankruptcy & Equitable Division

    Bankruptcy and divorce often go hand in hand, as one of the major causes of divorce is financial difficulty during the marriage. Couples may seek to file bankruptcy prior to or during divorce in order to liquidate joint debts or file for bankruptcy post-divorce due to their post-divorce financial situation. Whether it is advisable for you to file jointly with your spouse or individually post-divorce depends on your motivations for filing for bankruptcy and your desired outcome.

    Generally, there are two types of personal bankruptcy that an individual may seek pursuant to the United States Bankruptcy Code: Chapter 13 bankruptcy and Chapter 7 bankruptcy. If a family earns more than the state median income, they are generally not eligible for a complete liquidation under Chapter 7 and must file a Chapter 13 bankruptcy plan. A Chapter 13 bankruptcy requires that a debtor or joint debtors make bi-weekly payments to a trustee for three to five years to repay creditors to the best of their ability. A Chapter 7 bankruptcy does not require this reorganization of debt, and most of the couples, or individuals, existing debts will be discharged.

    Although it is generally not advisable for a couple to file a joint Chapter 13 bankruptcy prior to a divorce, as Chapter 13 proceedings may endure for 36 months or more, a Chapter 13 bankruptcy plan may be advisable for an individual filer post divorce.


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