Wednesday, June 18, 2008

Divorce and Bankruptcy

Until 2005 I had a consumer bankruptcy practice, and I can say divorce is one of the greatest - if not the greatest - causes of bankruptcy. Bankruptcy law comes into play in divorce at two places: during the divorce case or after.

Bankruptcy impacts divorce before the Final Hearing in dealing with your debts. Divorce causes a two income family to become two families with single incomes plus the costs of the divorce litigation. It may be better to file a bankruptcy petition before finalizing the divorce.

Bankruptcy law creates more of a problem after the Final Hearing. While child support cannot be gotten rid of in a bankruptcy, the bankruptcy court can alter the distribution of debt ordered by the divorce court. That is one problem and the other problem is the bankruptcy courts have their own procedural rules that can sink a good case for the one not filing bankruptcy.

If you get a notice that your former spouse filed bankruptcy, contact a lawyer immediately. I am admitted to the United States Bankruptcy Courts for the Northern and Southern Districts of Indiana and I will take on cases in Indianapolis, Lafayette, and Fort Wayne. Call me if you get a notice for a case in any of those courts.

You might want to take a look at's What Happens to Child Support, Alimony when Ex Declares Bankruptcy.

Thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), individuals who are owed child or spousal support are protected from losing those funds in court. According to Borden, the laws that served primarily as a bankers’ protection bill also helped with family law claims. “All family law claims are now called first priority. That means that they enjoy a priority when it comes time for the trustee to decide who gets paid and who doesn’t,” Borden said.

Another primary difference, thanks to the BAPCPA, is debtors no longer have the right to enjoy an “automatic stay” when it comes to certain family law claims. “When you file for bankruptcy … One of the very first things that happens is that all creditors have to quit picking on you for a little while,” Borden said. “What the automatic stay says is that when I file for bankruptcy you can’t pick on me for a while. It’s a powerful incentive for people to file for bankruptcy.”

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