Divorce and Chapter 7
Divorce and Chapter 7 You Could Win, or You Could Lose.
You want do a divorce and Chapter 7 bankruptcy at the same time. You need to know if you should file bankruptcy first, then the divorce, or the other way around. The right answer depends, of course, on your individual circumstances. Because divorce and bankruptcy are interrelated, and it gets complicated, you need to discuss your options with a certified specialist who can give you the right answer. Many attorneys have written on this topic.
You may have concerns involving property division, spousal support, child support and other important issues. Making the wrong choice could result in significant financial loss and unexpected results. Divorce and Chapter 7 must be carefully coordinated.
Why Chapter 7 Might Result in No Discharge of Your Debts
Bankruptcy discharges your debts, right? Maybe not. In a Chapter 7, there is a specific prohibition that affects debts ordered to be paid by a decree of divorce or in a dissolution. The bankruptcy code prevents discharge of certain debts.
As you would expect, spousal support and alimony are not discharged in bankruptcy. But there is a danger, in Chapter 7, for you if you want to discharge debt AFTER your divorce or dissolution.
The danger is found in 11 USC 523 (a) (15). This section of bankruptcy law prohibits the discharge of debts to a spouse or in connection with a separation agreement or decree of divorce.
A common example where this hurts you happens when you agree to pay a credit card in a decree of divorce, and then later seek to discharge the credit card debt in Chapter 7.
Clearly, if your decree says you are ordered to pay this debt, you will still need to deal with it even if you file Chapter 7. Divorce and Chapter 7 is not as simple as it seems.
I discussed this common mistake with Bankruptcy Judge Keith Lundin, author of an entire set of lawbooks on Chapter 13. He told me that he sees “malpractice in my court every day,” related to this mistake.
Boiled down to an over-simplified rule, you generally don’t want to file divorce and then file Chapter 7, if you want to discharge debts ordered to be paid, or in connection with, your decree.
And this is a real problem, because in Ohio, the law requires you to list ALL your debts in your decree or separation agreements. You can’t legally allowed to “leave out” debts.
Don’t Try to Be Your Own Internet Lawyer for Divorce and Chapter 7
Much misinformation waits for you on the internet. Here’s an example. If someone was trying to figure out if they can file divorce and chapter 7 and eliminate debt after getting divorced, they might look up 523 (a) (15). At first it might seem like a legitimate source of information, but divorce and chapter 7 is puzzling even for attorneys.
Don’t make this mistake. The information has no date, and it is dangerously out of date. The law no longer contains that exception language! But you will not know that from reading this website. There is a lot of information that is wrong or just out of date
Chapter 7 and Bankruptcy Loss of Retirement Account
Another danger exists for retirement accounts. If you file Chapter 7 and have been awarded a portion of your ex-spouse’s retirement, read this! So you could lose the entire amount, unless you have protected the funds.
You will not figure this out from reading the bankruptcy code. And this happens more than you would expect. Check out this case. Note that it is a court of appeals case. This means that the amount was enough to justify the expense of taking the case all the way to the court of appeals. Your divorce and Chapter 7 case should never end up in an appeals court.
When you are going through a divorce, and need Chapter 7 bankruptcy, you have enough trouble in your life. You don’t need the additional, and avoidable, problems created by making mistakes with your bankruptcy strategy.
When you’re considering divorce and Chapter 7 bankruptcy at the same time, you should consult a board certified bankruptcy specialist. I have handled these cases for many years and stay abreast of all changes in the law.
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