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Divorce, Bankruptcy & Shared Property

Divorce, Bankruptcy & Shared Property


When divorce or another life crisis pushes you to file for bankruptcy, it can just add stress to an already stressful situation.

Divorce is one of the major reasons people cite as to why they had to file bankruptcy.

When you’re suddenly responsible for paying alimony and/or child support, it can take a big toll on your finances.

If you’re thinking about filing bankruptcy, you’re probably wondering how your property may be affected. Read on to learn more about divorce, bankruptcy and property.

Property in Divorce: Division of Debts and Assets

As you may already know, part of your divorce settlement will involve a distribution of your debts and assets between you and your spouse.

The division of these debts and assets will depend on a number of factors, which can include:

  • Your state’s divorce laws: The laws where you live (either community property or equitable distribution laws) will play a role in how your property is divided.

  • Generally, community property states call for an equal division of property between spouses and equitable distribution takes into account a variety of factors to determine division.

  • Length of your marriage: The length of your marriage will likely play a role in who gets what when you split. Usually, the longer a marriage, the more equally distributed marital property is.

  • Presence of prenuptial agreements: Not all courts will recognize the validity of prenuptial agreements (and post-nuptial agreements), but if yours adheres to all appropriate regulations, and your state recognizes them, this could influence the division of property.

Keep in mind, your state divorce and bankruptcy laws may consider other factors.

For this reason, it’s a good idea to consult with a divorce or bankruptcy lawyer about your specific case and learn about the laws in your state.

Property in Bankruptcy: Exemptions

The amount of your personal property may help you determine which chapter of personal bankruptcy (Chapter 7 or Chapter 13) may best suit your needs.
  • Chapter 7 exemptions: Chapter 7 bankruptcy was designed to offer the discharge of many types of unsecured debts.

  • Some Chapter 7 cases also include a liquidation sale where the filer’s trustee sells the filer’s non-exempt property to repay creditors. This means that if you have many possessions not exempted by your state, you risk losing them if you file under Chapter 7.

  • If you have secured debts and file Chapter 7, you can choose to redeem them (by paying the full amount you owe), renew them (by agreeing to continue making payments) or surrender your property to your creditor (and be free of the debt).

  • Chapter 13 repayment plans: Chapter 13 bankruptcy allows filers to catch up on late debts while staying current on other debts. If you have significant property that isn’t exempt under your state’s laws and you’d like to hang on to that property, Chapter 13 will probably allow you to keep them and catch up on payments you owe. Many people facing foreclosure or repossession find that Chapter 13 can help them.
Responsibility for Discharged Debts

It’s important to note that the designations of the divorce court do not apply to the bankruptcy court.

This can have very specific consequences for your case if you and your spouse have (or had) joint debt.

For example, if your spouse is responsible for a debt in your divorce settlement, then he or she files bankruptcy, the court may not discharge the debt because another borrower is capable of paying it (you!). That means the debt could land on your shoulders.

For this reason, it’s important that you contact your ex-spouse if you plan on filing for bankruptcy after a divorce.

If either of you is considering bankruptcy before a divorce, it can be a good idea to explore all your options (joint or single filing, Chapter 7, Chapter 13, etc.) with the help of a local bankruptcy lawyer.

For advice on bankruptcy after divorce, visit www.totaldivorce.com


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