Understanding How Bankruptcy Can Play A Part In Your Florida Divorce
We are not bankruptcy attorneys and do not specialize in bankruptcy. However, bankruptcy is one of our concerns when structuring a settlement for divorce purposes. Being aware of typical problem areas related to bankruptcy can help us to more efficiently and effectively structure your divorce agreement.
To schedule a consultation with a Fort Myers divorce attorney from our family law firm, contact us today. Call 239-243-9297 or toll free at 888-550-6071. If bankruptcy is a possibility for you or your spouse, we encourage you to also talk with an attorney who specializes in bankruptcy law to get complete legal advice tailored to your specific situation.
Fort Myers, Florida, Attorneys Considering The Effect Of Chapter 7 And 13 Bankruptcy On Filing For Divorce
Most people think that divorce terminates all of their joint financial obligations with the former spouse. It doesn’t. Although bankruptcy is a method commonly used to seek credit card debt relief, non-alimony and child support debts — such as credit card obligations, notes secured by mortgages, automobile loans and equitable distribution payouts — are no longer automatically dischargeable in bankruptcy.
Child Support And Alimony
Child support and alimony are not dischargeable in bankruptcy. If the payments your spouse is supposed to make are for support, then he or she still has to make them even if they go through a bankruptcy. This has been true for a long time.
Joint Debts And Liabilities
If you and your spouse are jointly responsible for a debt and one of you decides to file for bankruptcy on that joint debt, the creditor will probably try to collect from the other spouse for full payment of the debt. This is true even if you agree in your marital settlement agreement that the spouse declaring bankruptcy is supposed to pay for these debts.
Keep in mind that the creditor agreed to give credit on the condition that both of you would be responsible for paying it. Your divorce doesn’t alter your previous agreement with the creditor. That creditor was not a party to your divorce and is not bound by your divorce agreement. However, you can agree that the spouse agreeing to pay the specific debt will indemnify the other spouse in the event the creditor ever comes to them for payment.
For example, if one of you purchased a dishwasher from Sears during your marriage and charged it to your joint credit card, when you later get divorced, you both remain responsible to Sears for the full payment on that credit card debt. You can agree in the divorce settlement that one of you is responsible for paying Sears while the other pays another debt. However, even if you paid the other bills you agreed to pay, Sears can still collect from you if your former spouse doesn’t pay. You can agree in your divorce that if your spouse doesn’t pay Sears and Sears comes after you for payment, your spouse will have to pay for any costs you incur in defending yourself against Sears.
The problem before October 2005 was that if your former spouse declared bankruptcy, getting your spouse to pay what they promised to pay was very difficult, if not impossible. The solution before October 2005, which is still helpful today, is to pay attention to which party is legally liable for paying a debt.
If you have concerns about whether the debts will be paid by your spouse, and you are more likely to make the payments, determine if there is a way to put the debts you are concerned about in your column, and the debts that are not joint or are solely personal to your spouse in your spouse’s column in an equitable distribution spreadsheet. The idea is to structure an agreement that does not depend on your former spouse making timely payments so your credit score remains undamaged.
If you agree to take a cash settlement to be paid over time from your spouse, it is important to secure the payments. You can place a hold or lien on property if the debt is not paid. You can use real property, such as a house or a lot, or personal property, such as stocks, bonds, jewelry, etc. as collateral.
You can structure the agreement so that joint debts get paid first as part of the divorce settlement. For example, if the marital home is to be sold, an agreement to pay off all joint debts from the proceeds before you split what is left will minimize your exposure. This could be applied to any source of funds, including the sale of another property, proceeds from a particular bank account or otherwise.
If a spouse is refinancing a property, you might agree that out of that refinancing, a portion or all of the joint debts would be satisfied. That spouse could receive a credit in another area to equalize the distribution.
Are Joint Debts Dischargeable In Bankruptcy?
Let’s say you did everything you could to structure an agreement so that your credit is not damaged, a debt was secured or a plan put into place to eliminate a debt when property is sold. Could your former spouse discharge in bankruptcy his or her obligation to pay you back if you advance payment for his or her share of the debt?
Beginning with all bankruptcy cases filed on or after October 17, 2005, the answer is that a person filing bankruptcy may not discharge a debt if it is “to a spouse, former spouse, or child of the debtor and not of the kind incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree, or other order of a court.”
While this does not change your personal liability to the creditor for repayment of joint debt, your divorce decree or the marital settlement agreement adopted by the final judgment of dissolution creates an enforceable obligation against your former spouse for payment of his or her share of the debt. This is particularly true where your marital settlement agreement or final judgment includes a clause directing the obligated spouse to indemnify and hold the other spouse harmless for payment of the debt.
There may be exceptions to this general rule, depending on whether your former spouse liquidates under Chapter 7 bankruptcy or reorganizes under Chapter 11 or Chapter 13 bankruptcy. The amount of the outstanding indebtedness compared to cash flow is the determining factor for which type of bankruptcy process applies. Certain types of obligations and debts arising out of a divorce, including property settlements, may still be dischargeable in a Chapter 13 bankruptcy proceeding.
Attorney’s Fees And Costs
Attorney’s fees and costs awarded in a divorce proceeding are also not dischargeable. An award of attorney’s fees is a debt incurred in the divorce proceeding. However, your own attorney’s fees incurred in a divorce proceeding that were not ordered to be paid by the other spouse are still dischargeable.
Contact Our Lee County Law Firm
We are here to help you consider how filing for divorce could affect Chapter 7 or 13 bankruptcy filing and vice versa. Contact our Fort Myers, Florida, lawyers today to schedule an appointment.
Referrals To Experienced Bankruptcy Attorneys When Necessary
If your spouse has filed for bankruptcy, or if it is a concern, we suggest that you consult with a qualified bankruptcy attorney who could advise you specifically about how to best handle your situation. Please let us know, and we will be happy to provide you with the names of several attorneys we have worked with before.