In Bankruptcy Information, Bankruptcy Questions

Money is one of the most common causes of divorce. More precisely, lack of money or lack of control over spending money is one of the most common causes of divorce. Many people think if they divorce, things will become better financially. The truth is, when a couple divorces, it’s unlikely that either of them will be better off financially alone than they were together. That’s because divorce doesn’t do anything about the debts, except maybe allocate who is supposed to pay what. Post-divorce there are two households instead of one to maintain. So the couple ends up with twice the household expenses, the same debts, and the same money being stretched even more. Before getting divorced, a couple needs to have an honest discussion about finances, including debts.

Divorce Can’t Eliminate Debt

In most divorces there’s an allocation of debts. One party is ordered to pay certain debts, the other party is ordered to pay other debts. Some people think that once this allocation is ordered, the person is absolved of liability for debts assigned to the other party. That’s completely false. The creditor made a contract with both parties. A divorce court cannot eliminate the liability of either of the parties. This comes as a big shock when, some months after the divorce, the ex-spouse hasn’t made payments and the creditor comes knocking at the other’s door. Whenever a bankruptcy lawyer sees an ex-spouse come to the meeting of creditors, she knows it’s going to get nasty. The ex-spouse almost always leaves more angry than when she came, because she finally realizes those creditors that the ex was ordered to pay can, indeed, come after her.

Bankruptcy Does Eliminate Debt

Although a divorce court can’t relieve a person of liability for a debt to a third party, a bankruptcy court can. That’s because the law expressly provides for a discharge of debts to qualifying debtors. A discharge is the goal of every bankruptcy and is the order that the person receiving the discharge is no longer liable for the debts included in the bankruptcy.

If One Person Files Bankruptcy, the Other Should Consider Filing Too.

If one of the parties to a divorce is contemplating filing bankruptcy, it’s almost always better for both parties to file. Doing so simplifies the allocation of debts in the divorce, since most of them are discharged; and it ensures that one party won’t get stuck paying a debt she thought the other was ordered to pay. Even if a debt allocated to one party in the divorce is a Domestic Support Obligation (or DSO in bankruptcy parlance), which can’t be discharged, you can’t get blood out of a turnip. If the divorce court orders the ex-husband to pay a debt and then he files bankruptcy, the creditor cannot legally attempt to collect from him after his discharge. There’s only one place for the creditor to go and that’s to the ex-wife. The ex-wife can go back to the divorce court and have the ex-husband held in contempt for not paying his DSO, but that doesn’t get the debt paid, nor does it relieve the ex-wife of the obligation to pay the creditor directly.

Most Debts in One Party’s Name

The exception to the general rule that if one party to a divorce is contemplating filing bankruptcy, the other party should as well is when most of the debts are in one party’s name. In that case, the other party has no liability for those debts in the first place, and creditors can’t come back after her if the spouse files bankruptcy.

A Couple Must be Married to File Jointly

Because only married couples can file jointly, it makes sense that the soon-to-be ex-couple put their divorce on hold long enough to file bankruptcy together. This can be awkward in an acrimonious divorce, but the parties should put on their big boy and girl pants and do it together. It saves two bankruptcy filing fees and two attorneys’ fees, plus it simplifies the divorce. Just remember that the bankruptcy attorney is NOT the divorce attorney. If there are issues over child support, visitation, property distribution or anything unrelated to bankruptcy, the bankruptcy attorney is not the one to talk to. Also, the bankruptcy attorney represents both parties. Anything one party tells the bankruptcy attorney, he is obligated to tell the other party.

If you have bankruptcy questions, please contact us. You can email steve@schamberslaw.com, or text or call (801) 413-3708.

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