Bankruptcy and Divorce – Now What?

Dothan Bankruptcy Attorneys with experience in dealing with divorced clients in Dothan, Ozark, Enterprise, and the rest of Alabama

A divorce not only strains the emotions; it also immensely strains the finances of people who are trying to get back on their feet. Maintaining one household while married is challenge enough for most people; after a separation, the challenge of supporting two households, all while trying to move on with your life, can seem like an insurmountable hurdle.  Sometimes, the fresh start of a divorce is best accomplished by the equally fresh start of bankruptcy relief.

A divorced spouse may file for bankruptcy independently.  While a common misperception exists that married couples must jointly file for bankruptcy, the law says that one spouse can file for bankruptcy without the other. However, since most debts incurred during a marriage are typically the responsibility of both spouses, creditors often are able to pursue collection of the debts from the non-bankrupt spouse.  That is why married parties usually both file for bankruptcy.  In the event of a divorce, the divorce court cannot prevent creditors for pursuing the non-bankrupt spouse, and cannot order the spouse who has discharged the debt to pay it. Thus, the decision whether to jointly file for bankruptcy prior to the divorce (assuming the parties can cooperate sufficiently to achieve this), or to wait until after the divorce and independently file is a matter of legal strategy and should be discussed with your attorney.

It is important to note that the automatic stay provisions of the bankruptcy code apply if one spouse files for bankruptcy in the middle of the divorce. Thus, in the event a spouse filed for Chapter 7 while the divorce was pending, all financial matters (property settlements) and effectively the entire divorce would be halted until the bankruptcy case ended. However, non-financial matters such as child custody would not be stayed.

In many states, a spouse may acquire title to his or her ex-spouse’s property upon the filing of a divorce or dissolution, and would become liable for debts on these property interests, which the ex-spouse would have otherwise been required to settle.  These debts are dischargeable unless they are support obligations. Alimony, maintenance or support obligations are not dischargeable if: 1) the debt was incurred in connection with a separation agreement, divorce decree, or other order of a court; 2) the debt was be “actually in the nature of alimony, maintenance, or support; and 3) the debt was not assigned to another entity other than certain governmental agencies.

However, sometimes “alimony” may be dischargeable in Alabama. A legal distinction exists as to  whether the alimony is considered “alimony in gross” or “periodic alimony.”  Let our Dothan legal team at Parkman White, LLP review your divorce decree to determine whether there are obligations that may be discharged through  bankruptcy.  If you are not yet divorced, but are considering a divorce as well as bankruptcy, our expert divorce attorneys can advise you through the process and protect your rights and your assets.  Call us today at 334-792-1900, or email us for a free consultation. You will be glad to have put our experience to work for you.