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690 Flatbush Avenue West Hartford, CT  06110-1308

860 236-9350             800 856-6400  toll free     860 523-9101  fax

27 Holmes Avenue Downtown Waterbury 203 756-6100

 

Bankruptcy And Divorce

If You File Bankruptcy

If Your Ex-Spouse Files

If You Both File Before the Divorce

   Many times, one or both spouses who go through a divorce file bankruptcy or think about filing bankruptcy.  Financial pressures often are part of the factors that led up to the divorce.  The expense of setting up two households, trying to maintain the same standard of living for the sake of children, and having to rely on or pay child support and alimony also contribute to the financial difficulties spouses face after a divorce.

    Bankruptcy after divorce is often a real possibility.  The Bankruptcy Act of 2005 significantly changed the effect of bankruptcy on divorce.  Going through a divorce without knowing how bankruptcy could affect the divorce terms could result in unpleasant and damaging surprises.  We believe you should be prepared ahead of time.

    On the other hand, sometimes it may be advisable to file bankruptcy jointly before your divorce goes through.

    Our experience at the Serrano Law Firm with both bankruptcy and divorce helps us understand the problems you may be facing in a way that attorneys who handle just bankruptcy or divorce cannot.  You can rely on our experience and understanding of both divorce law and bankruptcy law to guide you through this difficult time.  We will explain your options and help you make the choices that best serve you and your family.

    We are providing you with some general information from three points of view:  (1) you owe your spouse money after your divorce and you file for bankruptcy,  (2) your ex-spouse owes you money after your divorce and your ex-spouse files for bankruptcy, and  (3) you and your ex-spouse both file for bankruptcy before the divorce.

    Because of the significant effect that a bankruptcy can have on the terms of a divorce, we do not recommend that you file for bankruptcy individually before your divorce goes through without speaking to an attorney who knows both divorce law and bankruptcy law.

    This page provides information about the relationship between divorce and the most common forms of bankruptcy, Chapter 7 Bankruptcy, in which you cancel the debts that the law allows you to cancel, and Chapter 13 Bankruptcy, which is typically filed to get caught up on overdue mortgage or car payments.  (Disclaimer:  Do not rely on the general statements here for your individual situation.)

 

(Numbers in blue refer to Bankruptcy Code sections.)

If You File Bankruptcy and Owe Your Ex-Spouse Money

    The automatic stay, which immediately stops creditors from trying to collect on their debts when you file bankruptcy, does not suspend your obligation to keep paying child support or alimony.  The stay also will not stop a motion for contempt or other efforts to collect support or alimony.  362(b)(2)

    Filing bankruptcy will not discharge (cancel) your debt for overdue child support or alimony.  In fact, a major change made by the 2005 Bankruptcy Act is that debts for support and alimony are now first priority.  If any of your assets are available to pay your creditors, your ex-spouse will get paid before anyone else is paid, even before taxes are paid.  523(a)(5);  507(a)(1)

    The new bankruptcy law gives your ex-spouse certain other rights that other creditors do not have.  Assets that you can protect from all other creditors (called exempting) cannot be protected from being used to pay overdue support or alimony (although this is being challenged in court cases).  Liens placed against your property by the divorce court for overdue support or alimony cannot be cancelled like they can for other debts.  522

      In another significant change under the new bankruptcy law, debts from a property settlement in a divorce cannot be cancelled in a Chapter 7 Bankruptcy.  (Previously, in deciding whether to cancel property settlement debts, a bankruptcy court would see which spouse would have the greatest hardship if the debts were cancelled.  Now, such debts are never cancelled in Chapter 7.)  523(a)(15)

    Property settlement debts may still be cancelled in Chapter 13 Bankruptcy  and it appears a balancing of the hardships test would still apply.  Alimony may even be cancelled in Chapter 13 bankruptcy if the bankruptcy judge can be convinced that the alimony is really property division and not spousal support.  (See the FAQ page alimony section.)   1328(a)(2)

    The new bankruptcy law protects alimony and child support in Chapter 13 by requiring that all your payments are current before the bankruptcy court will confirm your repayment Plan.  Your bankruptcy case will be dismissed or converted to Chapter 7 bankruptcy if you fall behind in your support or alimony payments and cannot confirm your plan.  Your repayment plan must provide for any support or alimony you owed your ex-spouse when you filed bankruptcy.  To get your Chapter 13 bankruptcy discharge, you will have to certify that your payments are current.   1307(a)(11);  1325(a)(8)

    When you file either a Chapter 7 bankruptcy or 13 bankruptcy, the trustee (the person who reviews your case for the court) must notify your ex-spouse that you have filed and provide information to help him or her collect support through the state bureau of child support.  When you receive your bankruptcy discharge, the trustee again notifies your ex-spouse and provides your address and your employer's name and address.  704(c);  1302(d)

 

 

If Your Ex-Spouse Files for Bankruptcy and Owes You Money

    If your ex-spouse files a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy, the trustee (the person who reviews your case for the court) must notify you about the filing and provide you with information to help you collect support through the state bureau of child support.  When you are notified, you should immediately file a Proof of Claim form with the  bankruptcy court to declare how much your ex-spouse owes you for alimony, child support or a property settlement.  If you do not file the form on time, you may not get paid, especially if your are due money for a property settlement and your ex-spouse has filed under Chapter 13.  704(c);  1302(d);  501;  502

    Your ex-spouse's filing of bankruptcy does not suspend his or her obligation to keep paying your child support or alimony.  The bankruptcy automatic stay, which immediately stops your ex-spouse's creditors from trying to collect on their debts, does not apply to money owed you for support or alimony.  You can pursue motions for contempt or any other efforts to collect support or alimony.  362(b)(2)

    Your ex-spouse cannot discharge (cancel) his or her debt to you for overdue child support or alimony in bankruptcy.  Under the new 2005 Bankruptcy Act, debts for support and alimony are now first priority.  This means you will get paid before anyone else if any of your ex-spouse's assets are available to pay creditors523(a)(5);  507(a)(1)

    The new bankruptcy law gives certain other rights to your ex-spouses property that other creditors do not have.  Assets that can be protected from all other creditors (called exempting) cannot be protected from being used to pay overdue support or alimony (although this is being challenged in court cases).  If you place a lien against your ex-spouse's for overdue support or alimony, the lien cannot be cancelled like it can for other debts.  522

      In another significant change under the new bankruptcy law, debts from a property settlement in a divorce cannot be cancelled in a Chapter 7 Bankruptcy.  (Previously, in deciding whether to cancel property settlement debts, a bankruptcy court would see which spouse would have the greatest hardship if the debts were cancelled.  Now, such debts are never cancelled in Chapter 7 bankruptcy.)  523(a)(15)

    Your ex-spouse may still cancel debts he or she owes you under a property settlement if he or she filed a Chapter 13 Bankruptcy.  It appears the court would still apply a balancing of the hardships test..  Alimony may even be cancelled in Chapter 13 if the bankruptcy judge can be convinced that the alimony is really property division and not necessary for your own support.  (See the FAQ page alimony section.)   1328(a)(2)

    The new bankruptcy law protects alimony and child support in Chapter 13 by requiring that all payments be current before the bankruptcy court will confirm your ex-spouse's repayment Plan.  The Chapter 13 bankruptcy case will be dismissed or converted to Chapter 7 bankruptcy if he or she falls behind in your support or alimony payments and cannot confirm the plan.  The repayment plan must provide for any support or alimony that your ex-spouse owed you when the bankruptcy was filed.  To get a Chapter 13 bankruptcy discharge, your ex-spouse will have to certify that all support and alimony payments are current.   1307(a)(11);  1325(a)(8)

    When your ex-spouses receives the bankruptcy discharge, the trustee will let you know and will give you your ex-spouse's address and employer's name and address.  704(c);  1302(d)   

 

If You Both File Bankruptcy

    Under certain conditions, filing a joint Chapter 7 Bankruptcy before your divorce goes through might be a very good idea, especially if there will not be enough money to maintain two households and pay off your debts.  Filing bankruptcy jointly before your divorce has the following advantages:

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Resolving the divorce will be simpler if you do not have to decide who has to pay which debts.

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Each of you will not have to be concerned that the other might file bankruptcy after the divorce, which could change the effect of the divorce settlement.

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The two of you might be able to keep more property by filing jointly, particularly when a home is involved, because the amount of property that is protected in bankruptcy through exemptions is doubled in a joint case.  Here is an example:
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The federal bankruptcy exemption for the equity in a home is $20,200 per individual and $40,400 for a couple filing jointly.

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If one spouse keeps a house with $40,000 equity after the divorce and then files bankruptcy, he or she will not be able to protect that equity using the federal bankruptcy exemption.

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If both had filed before the divorce, they would have been able to keep the home using the $40,400 joint federal bankruptcy exemption.  The home could then be transferred after the divorce.

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The two of you might both be able to get rid of all dischargeable debt by filing a joint Chapter 7 Bankruptcy before the divorce but if you both wait until after the divorce one of you might have to file a Chapter 13 Bankruptcy (which requires that unsecured creditors be paid part or all of their debt over 3 to 5 years).  Your separate household income might be too high to qualify for Chapter 7 under the Means Test.  Here is an example:
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A couple has 2 children and $95,000 in joint income before divorce.  They could file a joint Chapter 7 bankruptcy.

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After the divorce, the wife has custody of the children and has $40,000 in income while the husband has $55,000 in income.  The wife would be able to file Chapter 7 but the husband would not because his income would be too high.

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It is less expensive to file a joint bankruptcy.  There is only one filing fee.  Attorneys usually charge about the same for an individual as for A joint bankruptcy because the work involved is basically the same.

    While filing Chapter 7 Bankruptcy together might make good sense, filing a joint Chapter 13 Bankruptcy is not advisable for a number of reasons:

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The bankruptcy case will last from 3 to 5 years, which means you and your spouse would have to cooperate during this entire time by making Chapter 13 Plan payments and by filing annual joint income and expense statements.  This would be particularly difficult if one or both of you remarries.

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If one spouse decides to stop making his or her share of the Plan payments, or can no longer afford the payments, the case will be dismissed against both spouses unless the other spouse chooses to make the entire payments.  Dismissal of a case can have very negative consequences, such as being unable to file bankruptcy again for some time or losing the protection of the automatic stay (meaning, for example, that a bank could start or continue a foreclosure case if a new bankruptcy case is filed).

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It will be more difficult to convince the Chapter 13 Trustee or the court that the Chapter 13 Plan will be successful if the parties are going to be divorced.  This would make it difficult or impossible to have the Plan confirmed, resulting in the case being dismissed or converted to Chapter 7 bankruptcy.

 When You Need a Connecticut Bankruptcy Lawyer or Connecticut Divorce Lawyer,

Rely on Us for Skill, Determination and Experience.

Connecticut Debt Relief By Filing Bankruptcy

Congress has designated the Serrano Law Firm a debt relief agency.

We help people file for debt relief under the Bankruptcy Code.

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Attorney John Serrano - Personal Injury, Social Security Disability, Divorce, Bankruptcy, Immigration, Workers Compensation.  Hartford, Waterbury

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This information is not intended to be legal advice for your individual situation.

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