What Happens if You Divorce During Bankruptcy Proceedings?

more+
less-

The state of Georgia has the eighth-highest divorce rate in the United States. Our state also outpaces the rest of the nation in unemployment (8.6 percent, compared to 7.6 percent as of June 2013). We don’t think these worrisome stats are coincidental.

Few issues put more of a strain on a marriage than financial woes. Many couples find themselves playing the blame game, with each accusing the other of allowing debt to get out of hand. Some couples wind up choosing to part ways. But when bankruptcy is involved, divorce comes with unique considerations.

Divorce or bankruptcy first?

If you and your spouse both agree divorce is the way to go and you agree when it comes to child custody, support and other concerns, then you likely want to go ahead and complete your bankruptcy proceedings before filing for divorce. This allows you to file only one Chapter 7 or Chapter 13 bankruptcy to handle your jointly owned debts, instead of each person having to file.

However, if you contest your divorce or your spouse does, then you probably want to file and finalize the terms of your divorce before proceeding with bankruptcy. This allows the divorce court to divide your assets and debts so you each know exactly what you are going to be responsible for going forward.

If you were already in the process of a divorce when you or your spouse decided to declare bankruptcy, another issue may arise. Most divorcing couples find their assets frozen by the court while their divorce goes through the system, which has, among other effects, the ability to make it impossible to file for bankruptcy without being in contempt of the divorce court’s order.

Additional considerations for bankruptcy and divorce

It is important to note that any debts related directly to your divorce and the divorce settlement are not dischargeable by bankruptcy. Therefore, any court costs and attorney fees related to your divorce proceedings remain your responsibility. Such common post-divorce debts as child support and spousal support also remain in full effect even after a declaration of bankruptcy.