Divorce and Bankruptcy

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During divorce:

When a bankruptcy petition is filed, an “automatic stay” is put in place, which stops creditors from proceeding with collection actions, foreclosure, eviction, and the like. Assets are frozen so that the bankruptcy court has the opportunity to determine what assets are owned by the petitioner and what debts are owed. Suppose a spouse files a bankruptcy petition while a divorce is pending (or a divorce is filed while a bankruptcy petition is pending). In that case, the Probate and Family Court will be unable to proceed with the division of assets in a divorce due to the automatic stay, essentially halting the divorce process until the bankruptcy matter is concluded.

After divorce:

When a bankruptcy petition is filed by a party after a divorce and seeks to discharge financial obligations contained in a judgment of divorce, anything in the nature of a “domestic support obligation” cannot be discharged. Whether an obligation in a judgment of divorce is a “domestic support obligation” is determined by federal bankruptcy law and not by the Probate and Family Court. According to 11 U.S.C. § 101(14A), a domestic support obligation is a debt that (1) is owed to a former spouse or child (2) in the nature of alimony, maintenance, or support, regardless of how the debt is designated, (3) by application of a separation agreement, divorce decree or court order, and (4) is not assigned to a nongovernmental agency.  Courts look to a wide range of factors to determine whether a debt is a domestic support obligation and not just how the obligation is described in the judgment or agreement.  Alimony and child support obligations (and arrearages resulting from failure to pay such obligations) are clearly not dischargeable in bankruptcy, but obligations for the division of assets and payments of loans and other debts have also been held non-dischargeable as domestic support obligations.


Whether you seek to file a bankruptcy petition during or after your divorce, or your current or former spouse files one, seek the advice of both an experienced divorce attorney and an experienced bankruptcy attorney.  Without proper guidance, you could be left holding the bag.

Until next time,

Robin

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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