Information
Law Office of Diane Brazen Gordon
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Chicago and Northern Suburbs
Bankruptcy and Divorce
A. Overview of the Dischargeability of Divorce Debts in Bankruptcy
B. Resolving Financial and Family Difficulties
Diane Brazen Gordon represents individuals and couples filing bankruptcy as a way to obtain a fresh start. She has a special interest in bankruptcy as it relates to divorce. In these stressful financial times, many couples contemplating divorce are also facing overwhelming financial problems. Many divorcing couples are unable to afford the costs of maintaining two households. After a divorce, one or both spouses may be unable to pay their debts and household expenses. Unexpected expenses may exacerbate an already difficult situation. So many families are stressed financially due to medical expenses, job loss, student loans, tax liabilities, and an increasing inability to make mortgage payments. The decision to file a bankruptcy case before, after, or during a divorce can have a substantial impact on the bankruptcy case and the divorce case.C. Information About Divorce and Bankruptcy
1. Collection of Joint Debts Against The Spouse Who Does Not File Bankruptcy
If one spouse files for bankruptcy and obtains a discharge of a debt owed by both spouses, the creditor is likely to pursue collection of the debt against the nonfiling spouse. Even though the divorce decree may state that one of the parties is obligated to pay the debt, the creditor can still try and collect the debt against the spouse who did not file bankruptcy.2. Priority of Alimony, Maintenance and Support Debts
The 2005 amendments to the bankruptcy law created a term called a “Domestic Support Obligation,” referred to as a “DSO.” A creditor who is owed a DSO now has more rights and remedies. A person who owes a DSO now has much less ability to escape that obligation by filing bankruptcy. Debts that are DSO’s are not eliminated (“dischargeable”) in a Chapter 7 or a Chapter 13 bankruptcy. DSO’s have first priority status in a Chapter 13 bankruptcy. A court may not grant a discharge in a Chapter 13 bankruptcy unless the debtor certifies that the debtor is current on all post-petition DSO payments. Bankruptcy trustees must inform DSO claimants about the resources available to them to collect their claims and of their rights under the Bankruptcy Code.3. Discharge of Divorce Obligations
Since the 2005 amendments, debts for divorce property settlements owed by one spouse to the other spouse, to a former spouse, or to child cannot be discharged in a Chapter 7 bankruptcy. However, this rule does not apply to Chapter 13 cases. If a debtor completes a Chapter 13 bankruptcy repayment plan, that debtor can successfully discharge a property settlement debt (that is not a DSO) owed to his or her former spouse.4. Automatic Stay
Once a bankruptcy case is filed, the automatic stay goes into effect and protects the debtor against most collection actions. Most lawsuits and other actions to collect a debt cannot proceed without permission from the Bankruptcy Court. The 2005 amendments created many exceptions relating to divorce cases. Now most divorce cases can proceed, except actions to collect property from the bankruptcy estate or actions to establish a property settlement. If a person is contemplating a divorce and is facing overwhelming financial problems, he or she should consider consulting with a bankruptcy attorney to assist in the development of an overall plan to alleviate the family and financial difficulties. If a couple is divorcing it is often necessary for each spouse to have separate bankruptcy counsel.The information contained herein is for educational and informational purposes and is not legal advice.
