Bankruptcy and Divorce – What Happens to Debts After a Divorce?

The relationship between bankruptcy and divorce is an important one. All consumers should understand how these two issues are interrelated whether they are considering filing bankruptcy or not. Even if you are not in any financial trouble at present it is wise to take steps to protect yourself should this ever happen in the future.

When two people decide to get divorced it can be both stressful and expensive. Many people consider declaring bankruptcy as a way to ease their money and personal problems. How a divorce settlement is worded can be critical in terms of the way in which your own or your spouses bankruptcy will affect you and your children and vice versa. You need to understand some important issues surrounding bankruptcy and divorce.

The “automatic stay” is one of the most important aspects of a bankruptcy filing. If either you or your spouse files a bankruptcy an automatic stay will go into effect. This means that all efforts to retrieve the debt will cease. You need to understand, however, that there are exceptions to the automatic stay. You should become familiar with what debts are NOT included under the laws of your state. When it comes to bankruptcy and divorce settlements you MUST make sure you know your rights.

Under a bankruptcy and divorce settlement, support payments are not classed as dischargeable debts. In other words these debts must still be met by your spouse. Support payments for a former spouse or minor children must be honored. Examples are child support, alimony or spousal support, as well as the lawyer’s fees surrounding these issues.

Property settlements are another important area surrounding bankruptcy and divorce. If, under the terms of your divorce settlement, a property obligation is due it may or may not be discharged. Such obligations are usually non-dischargeable but they might be discharged. This can happen if a debtor shows that they are unable to repay the debt without undergoing hardship. This hardship might relate to himself, his children and other dependants and his business obligations.

In a nutshell the following bankruptcy and divorce related debts do not get discharged when a bankruptcy is filed:

* Alimony and child support – Make sure you know your rights when it comes to bankruptcy and divorce settlements.
* Some obligations for property settlement in divorce
* Student loans
* Debts that pertain to fraud or theft
* Criminal restitution

The way to deal with bankruptcy and divorce settlements is to get as much of the debt categorized as “support”. This way you stand the best chance of retaining access to your support payments after bankruptcy has been filed. If this is not possible take a lien on one or more valuable assets. This means that property can be seized to repay the debt to you.

To conclude this overview of the concerns surrounding bankruptcy and divorce, it’s a good idea to file for bankruptcy before filing for divorce. In this way you will be aware of what is going to be discharged before the divorce settlement. This makes it easier to negotiate a fair settlement. It will also save you money because you can file for one bankruptcy instead of two.