Few things in life impact your finances as heavily as divorce, especially if you're ordered to pay alimony and child support, on top of dividing your marital properties. If you are already struggling under a mountain of debt, you may be stressed about the prospect of going destitute from these extra responsibilities. While researching legal options, you may have come across the concept of filing for bankruptcy in the middle of a divorce. After all, there's no law prohibiting you from filing multiple legal actions at the same time. Plus, a bankruptcy filing is supposed to protect your assets, while discharging your debts. This seems like an ideal solution to your financial support dilemma, right?
Unfortunately, the US Bankruptcy Code specifically states that child support and alimony are not classified as dischargeable debts. Thus, if you have been ordered to pay child support and/or pendente lite alimony while your divorce is pending, a bankruptcy filing will not get you out of these responsibilities. In addition, the court will continue to hear, and make decisions on these issues regardless of where you are in your bankruptcy case. However, you may be able to request an automatic stay, or freeze on wage garnishments for back child support under a Chapter 7 or Chapter 13 bankruptcy. If you are filing Chapter 13, you will be allowed to propose a repayment plan for the child support arrears, just as you would for all your other debts. The court will also delay hearings for increases in support from previous spouses or partners until your bankruptcy case is resolved.
As you can see, a bankruptcy isn't particularly helpful when it comes to domestic support obligations, but it does have a significant effect on your marital properties. When you file for bankruptcy, the court puts an automatic stay on all your properties. A court-appointed trustee will determine the ownership of each property and decide whether to take the entire property, or just your interest in in the property. If it is jointly owned, the trustee technically cannot take your spouse's interest, but the property may have to be liquidated in order to take your interest. This method, however, does not apply to retirement accounts, of which you are the sole owner, but your spouse retains a certain amount of interest based on the contributions made during the marriage. Until this process is resolved, the family courts must hold off on making decisions pertaining to equitable distribution.
These are just some of the factors that you should consider prior to filing for bankruptcy with a pending divorce. A bankrutpcy can also result in future complications for both you and your spouse, even after you are officially divorced. For more information on bankruptcy laws and how they affect your divorce, please speak with the family law attorneys of Villani & DeLuca, P.C. Our attorneys will be happy to advise you on all the available options for protecting your interests during a free initial consultation.