Divorce can create intense financial pressure on otherwise successful individuals. The cost of divorce, the need to provide support and the division of property can all significantly alter an individual’s economic circumstances.
A recent divorce is one of the more common reasons that people file for personal bankruptcy. Recently-divorced individuals considering a bankruptcy filing need to understand the limits of the process to maximize the benefits that they derive and to avoid common mistakes.
What restrictions apply to a post-divorce bankruptcy?
Support isn’t dischargeable
Bankruptcy only allows for the discharge of specific, eligible debts. Neither child support nor alimony is usually eligible for a discharge. Additionally, people cannot use bankruptcy as a means of avoiding an obligation to divide specific property in accordance with a court order.
Discharges can lead to litigation
Frequently, final property division settlements after divorce include clear terms for the division of marital debts, not just marital assets. If the family courts order one spouse to pay certain credit cards or other shared debts, discharging those obligations in bankruptcy can cause complications.
Technically, creditors do not need to uphold or recognize family court orders about debt distribution. However, the other spouse who may become responsible for the debt after a bankruptcy filing could take legal action to enforce the property division order in court. There can be consequences to discharging a debt that is part of a property division decree, especially if creditors attempt to force the other spouse to take responsibility for that debt.
Discussing post-divorce financial circumstances at length with a skilled legal team can help people evaluate their options as they consider personal bankruptcy. A successful filing can provide a financial fresh start, but recently-divorced individuals may require guidance regarding what they can discharge and the other consequences of their bankruptcy case.
