A person can file for bankruptcy under several different chapters of the Bankruptcy Code. People seeking a clean slate and to avoid having structured payments often chose to file under Chapter 7 of the Code. Generally, a person who receives debts as part of a divorce can discharge that debt as far as the creditor is concerned along with all his or her other eligible debt in a Chapter 7 proceeding. This would practically mean that the person will no longer owe the creditor the debt after the bankruptcy discharge.

However, this move can have negative consequences for the filer’s former spouse. The creditors are not parties to the divorce and do not have to abide by a court’s order for one spouse to take on the debt. Therefore, after the filer’s debt is discharged, the creditor can still seek the debt owed from the other spouse. Because of this, the law allows the former spouse of a person who files for Chapter 7 bankruptcy to continue to pursue payment of the debt from the filer as if the debt is owed to the former spouse directly and not the creditor. Therefore, the debt is not truly discharged.

This means that while the creditor cannot legally sue the filer for a debt discharged in a Chapter 7 bankruptcy, the filer’s spouse can seek to enforce the divorce decree by having the filer held in contempt for failing to pay the debt. In addition, the former spouse can seek enforcement by taking steps such as putting a lien on the filer’s assets in order to ensure the debt is paid.

Additionally, Chapter 7 bankruptcy does not allow a person to discharge debt that is considered support debt following a divorce. This means that debts incurred for child support or marital support payments are not dischargeable in a Chapter 7 bankruptcy even after other debts are discharged.

Filing for Chapter 7 bankruptcy to help manage divorce debt is not necessarily a bad idea in all cases. For example, filing under Chapter 7 can allow a person to free up more money from having to pay the dischargeable debts and use that money to pay the divorce debt. However, there may be a better option to discharge divorce acquired debt under Chapter 13 bankruptcy.

Contact Us for Legal Advice

In order to make the best decision for your situation, or to decide if bankruptcy is right for you, you need to have a detailed discussion with an experienced bankruptcy attorney. For more information about how to deal with debt incurred as a result of a divorce, contact our experienced bankruptcy attorneys at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan.

(image courtesy of Glen McCallum)

Divorce or the possibility of divorce is incredibly difficult. What happens if your financial house is also crumbling?

The answer is: it depends.

Many couples who are contemplating divorce and bankruptcy come to us to ask us what to do first: file for divorce or file for bankruptcy.

The answer, again: it depends.

Here are the factors that must be considered before proceeding:

• The earning potential of each spouse
• The current earnings of each spouse
• The debts that each person brought into the marriage
• The debts that they have incurred  since the marriage
• The estimated living costs of each spouse after the marriage
• Whether or not the spouses are in agreement about filing a joint bankruptcy
• If there is a time constraint for obtaining either a divorce or a bankruptcy judgment, as they can both delay the process of the other.

It is important to consult both family law attorneys and bankruptcy law attorneys if you find yourself in this delicate situation, as timing and taking the appropriate legal action in the correct order matter a great deal. In this situation, spending your money, limited though it may be, would be well-served on sound legal advice.