When going through a divorce, the financial aspect of the separation can be the most challenging to navigate. Sometimes, it's impossible to pay all the bills and meet the financial obligations of both spouses. When the situation becomes dire, you might decide it's time to file for bankruptcy.
Filing for bankruptcy can help you discharge your debts and start anew, but you might wonder how the process will impact your pending divorce case. Let’s take a closer look at the relationship between bankruptcy and divorce.
Bankruptcy & Divorce Are Handled in Two Different Courts
The first thing to know is that filing for bankruptcy will not affect your divorce case's jurisdiction. Bankruptcy and divorce are two separate legal processes, and neither one will affect the other's authority.
So, you can file for bankruptcy in any federal court, and your divorce case will continue to be heard in state court. It's essential to understand this distinction because sometimes people think that filing for bankruptcy will stop or delay their divorce proceedings, which is not always the case.
Bankruptcy Can Impact Property & Debt Division
That said, filing for bankruptcy can still affect your divorce case in other ways. Specifically, bankruptcy can impact how assets and debts are divided between you and your spouse. When a couple gets divorced, they split their assets and debts. When you file for bankruptcy, you're essentially asking the court to discharge certain debts, which means you won't have to pay them. If those debts are joint debts that you share with your spouse, this means your spouse will be stuck paying off those debts on their own.
However, if you file for bankruptcy before your divorce is finalized, it can also help you and your spouse sort out which debts you'll be responsible for. When you file for bankruptcy, the court examines all your debts to determine which ones can be discharged. If you have debts that are either yours alone or joint debts that your spouse has agreed to pay, you can remove them from the equation. This means that when you and your spouse divide your assets and debts during the divorce, you'll have a clearer picture of what you're on the hook for.
The Automatic Stay Can Pause Support Payments
Another way bankruptcy can impact your pending divorce is through the automatic stay. When you file for bankruptcy, an automatic stay goes into effect that prevents your creditors from taking any action to collect on your debts. This stay prevents creditors from garnishing your wages, seizing your property, or otherwise harassing you for money.
The automatic stay can also have an impact on your spousal support or child support payments. If you're paying either of these to your ex-spouse, the automatic stay will prevent them from collecting any payments until the bankruptcy case is resolved. Keep in mind, however, that bankruptcy can’t discharge debt for spousal support or child support.
Bankruptcy May Be Advantageous During Divorce
Lastly, it's important to remember that while bankruptcy can impact your pending divorce case, it's not necessarily a bad thing. In fact, in some cases, it might be the best course of action for both parties.
By filing for bankruptcy, you can discharge your debts and start fresh, which might put you in a better financial position to negotiate a settlement with your spouse. Additionally, if you file for Chapter 13 bankruptcy, you can set up a repayment plan for your debts that can help you get back on track financially and meet your obligations.
Consult with an Experienced Attorney
Filing for bankruptcy will not affect your divorce case's jurisdiction, but it can impact how assets and debts are divided between you and your spouse. It can also help you sort out which debts you'll be responsible for during the divorce proceedings.
By discharging your debts through bankruptcy, you might be better positioned to negotiate a fair settlement with your spouse and move on with your life.
For more information about this topic, contact Buchalter & Pelphrey Attorneys At Law.