DIVORCE AND BANKRUPTCY

Many people cite divorce as the main reason for filing bankruptcy. If many of the couple’s debts are joint, and there are few assets that would be exempt under bankruptcy law, it is cost effective to file a joint bankruptcy to discharge marital debts. Bankruptcy filing fees are the same for joint and individual filings. Filing a joint bankruptcy with a spouse can save on filing fees and attorney’s fees, and it will allow double property exemptions.  If a couple owns a primary residence with equity, it may be advantageous to file a joint bankruptcy because the current exemption for a primary residence is $45,950.00.

          Litigating which debts should be assigned to a particular spouse in a divorce can be costly and time consuming. Moreover, the obligation of one spouse to pay a joint debt does not relieve the other spouse’s obligation as far as the creditor is concerned.

          What happens when a bankruptcy discharge is granted to one spouse prior to the entry of a divorce decree? What are the options for the other spouse? Can a judge order a spouse to pay for a debt that has been discharged in bankruptcy? The answers to these questions depend on the county in which the divorce is filed. If a bankruptcy is filed while a divorce is pending, the economic claims are automatically stayed under bankruptcy law. Permission from a bankruptcy judge is required to proceed with equitable distribution in the Court of Common Pleas.    

The timing of the bankruptcy is crucial. If the divorce is entered prior to a bankruptcy filing, certain marital debts in the nature of support are non-dischargeable.

          To avoid uncertainty, the spouses should file a joint bankruptcy which eliminates any disparity in post-divorce obligations to creditors.  

 

Categories: Bankruptcy & Creditors Rights, Mindful Divorce