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When Divorce And Financial Distress Intersect

Last updated on April 6, 2023

Family law and bankruptcy are both incredibly stressful times for people. Also, one often leads to the other. When spouses split up, can’t pay the family debts or lose jobs due to credit problems, then bankruptcy and family issues erupt. Either way, it is a problem requiring unique approaches for an acceptable resolution.

How Bankruptcy Can Affect Family Issues

For those divorcing or divorced, the bankruptcy issues fall into three categories:

  1. Child and/or spousal support: Bankruptcy discharge, payment of support and the automatic stay against actions to collect support
  2. Property settlement: What happens to debts between spouses (e.g. discharge)
  3. Liability to others: Who is liable for the debts during and after divorce

Bankruptcy Filed By Only One Spouse

California family law looks at debts differently than federal bankruptcy law.

Where there are nonexempt assets, a bankruptcy filing by one spouse pulls all the community property into the bankruptcy estate. It assures that use of the available assets goes toward paying debts right now. Most Chapter 7 cases, though, do not involve assets. Because of this, there is no distribution for the creditors because of the exemption of assets.

A bankruptcy filing brings all the debtor’s property and the community property of the debtor and their spouse into the bankruptcy estate. Conclusion of the filing relieves the debtor of liability of discharged debts.

A filing impacts family court rulings. The 2005 amendments to the Bankruptcy Code made debts arising in a divorce nondischargeable in Chapter 7, without any action required by the non-debtor spouse, including non-support obligations. (See 11USC 523(a)15.)

As a result, debts to even up the distribution of marital assets or obligations to hold the other spouse harmless from existing debts survive a Chapter 7 discharge. These obligations remain dischargeable in Chapter 13. For this reason, a Chapter 13 filing is often preferable to a Chapter 7. That leads to other issues, such as the “plan” and what assets you have, but you can discuss this with your attorney, who will file the bankruptcy petition.

Discuss Your Situation With Counsel That Cares

Our attorneys have been helping individuals hit the reset buttons on their finances and families move into new chapters of their lives for more than 30 years. Call Simkin & Associates in Los Angeles at 310-788-9089 or contact us online to tell us more about your family law and bankruptcy concerns.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.