What Happens If My Spouse Files Bankruptcy While We Are Getting Divorced?

You and your husband or wife have decided to end your marriage. You’ve been separated for some time and have been trying to broker an out-of-court settlement in your case instead of a family court judge making those decisions for you. However, now you’ve gotten wind of the fact that your ex is taking debt relief options under assessment. Keep reading where we’ll address the question so many prospective clients ask us, which is, “What happens if my spouse files bankruptcy while we are getting divorced?”

How a Bankruptcy in the Midst of a Divorce Impacts the Property Division Portion of Your Case

Just like any other bankruptcy, it results in an automatic stay as to attempts to divide property or enforce an order as to the division of property. Before any further action can take place in the state district court as to the division of property or other marital assets, the bankruptcy court must enter an order authorizing that case to proceed. Alternatively, in some cases, the bankruptcy court will assume jurisdiction of that portion of the case and determine the division of the property. Any property division discussions or potential settlements that may have been brokered prior to the bankruptcy filing may no longer be available or viable alternatives. 

How Bankruptcy Impacts Joint Debts

A key component of most domestic cases is a determination of which spouse will be responsible for paying the couple’s debts. Sometimes this includes secured debts like the mortgage or car payment and sometimes this includes credit cards, medical bills, or other unsecured debts. Even if those debts are the responsibility of your ex spouse, if they file bankruptcy and receive a discharge of those debts, the creditor can pursue you if your name is also on the debt. 

How Bankruptcy Impacts Child and Spousal Support Obligations

According to the United States Census Bureau, the average American who pays child support owes around $5,150 annually, an amount that equates to $430 per month. This monthly and, thus, annual obligation can be higher depending on income, the number of children, and other factors. Other divorcing spouses may agree to have a judge order them to pay alimony, known as spousal support here in NC. So, if they have kids, they may have an obligation to pay both child and spousal support, resulting in a significant monthly monetary obligation.

This monthly debt motivates some divorcing spouses with children or income disparities with their husband or wife to file bankruptcy, in part in hopes of alleviating themselves of the obligation to pay support. It’s generally an effort in futility, though. Why? 

While U.S. bankruptcy law generally allows debtors to discharge unsecured debts such as credit cards and medical bills, domestic support obligations (DSOs), which is what the bankruptcy court calls spousal support, alimony, and child support, cannot be discharged in any type of bankruptcy case that is filed. In addition, past due payments are given priority in repayment over all other debts, other than secured creditors. In addition, in order to have debts discharged, a debtor in a chapter 11, 12, or 13 case has to certify that they are current on all DSO payments or the discharge will not be entered. 

Where To Turn for Assistance in Understanding How Your Spouse’s Financial Choices Impact Your Divorce

Above, we’ve provided limited insight into some potential pitfalls you may encounter when splitting up debts and challenges your ex may confront you with that may lead you to think that you cannot rely on receiving the support the Court ordered them to pay. 

Whether you’re considering filing for divorce or you find yourself dealing with an ex who is trying to implement any strategy possible, including bankruptcy, to reduce what you’re due, reach out to us at Biggs Law Firm. We don’t only have experienced family law attorneys who regularly handle property division and support matters on staff to answer any questions you may have and also advise you of your legal options, but bankruptcy lawyers as well.