Filing Bankruptcy Before or during a Divorce?
Studies regularly show a connection between divorce and bankruptcy. Many people file for bankruptcy because of the financial challenges posed by divorce. Likewise, the underlying cause of many marital breakups is financial instability. If your marriage is in trouble, but you are also facing financial challenges, you want to give serious consideration to the potential benefits of a bankruptcy filing.
We generally counsel against filing a bankruptcy while a divorce is pending, but sometimes this is necessary. Doing this in hopes of “derailing” a divorce judgment or property distribution is usually fruitless or a practice that can backfire.
The interplay of bankruptcy and divorce is extremely complex and fact-sensitive. However, early review and consideration of the bankruptcy alternative for one or both spouses is a very good idea. That said, there are a few points that are generally valid.
First, unless you and your spouse have already worked out all the terms of an agreement, an ethical bankruptcy attorney will not represent both of you. Even where a joint bankruptcy filing is anticipated, separate counsel may be needed. Of course, one could do the primary and major work with the other providing independent review.
Second, a bankruptcy will not stop or protect the debtor from ongoing support or alimony obligations. It will not stop the entry of a judgment of divorce, or a family court’s deciding issues of custody or visitation.
Third, arrangements with your divorce attorneys for payment of their fees are fraught with difficulties and problems. This will need careful review.
Fourth, in a Chapter 13 case, equitable distribution obligations that involve payment of money (as opposed to distribution of property) can be discharged. In Chapter 7, this is not the case.
Fifth, timing is critical. A bankruptcy filing before a divorce is filed can potentially alter the outcome of a later property distribution, for good or ill depending on your point of view.
Sixth, the terms of a property settlement agreement or divorce judgment may end up taking certain debts out of discharge.
If you are in this situation, it is never too soon to consult with knowledgeable bankruptcy counsel. We recommend that you and your divorce attorney (if you have hired one) come in together to review the issues and strategies. If it then appears that a cooperative approach between husband and wife makes sense, those arrangements can be made.
At Neuner and Ventura LLP, we are in the unique position of having years of experience with both bankruptcy and divorce matters.
Contact Our Office
At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.
Representing Clients across South Jersey