There are two questions that often arise when dealing with both the issue of family law and bankruptcy together. One situation is typically that of a person who is divorced and signed a marital settlement agreement, or by court order is responsible to pay certain debts of the marriage. The other is a person who is contemplating a divorce, in bad financial condition and is considering bankruptcy, but unsure when would be the best time.
The first situation is the clearest to understand as there is a great deal of law on the subject. In 2005, Congress changed the rules to state that a spouse in a Chapter 7bankruptcy may not discharge a debt that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of the court. However, this is only an obligation to the spouse or former spouse, and does not affect the ability to discharge the creditor. If the debt was in the debtor's name alone, then the spouse or former spouse would not have reason to be upset as their credit and rights have not been injured. If it was a joint debt and the spouse or former spouse is being held responsible by the creditor, then the former spouse may be able to enforce the marital settlement agreement or divorce decree. This does not apply in a Chapter 13 bankruptcy, which may allow a spouse or former spouse to discharge such obligations as set forth in the settlement agreement or divorce decree.
The second situation is more difficult as it is fact dependant. It requires that your attorney fully understand both the marital situation and the details of the debtor's finances, with emphasis on the joint debt with the spouse. In some circumstances, it may be better to file a bankruptcy first and in others to finalize the divorce and determine the marital obligations first. As stated above, a Chapter 13 may allow for the discharge of obligations to a spouse or former spouse, where a Chapter 7 bankruptcy would not.
In both of the above cases, it only refers to debts issues. Child support, alimony, and debts incurred in litigating these issues would not be dischargeable in any bankruptcy. For the reasons stated above, it is very important for individuals to seek good competent legal advice before proceeding on their own, and should be careful when seeking the advice of less experienced persons that are not familiar with these issues.
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