The Impact of Bankruptcy on Family Law Matters
Key Takeaways
- If you file for bankruptcy, you could retain some ownership of your spouse’s shared assets.
- Bankruptcy does not discharge unpaid child support.
- If your spouse files for bankruptcy, you should get legal advice because it can affect your property and assets.
- How Does Bankruptcy Affect Divorce?
- Can I File for Bankruptcy and Keep My Spouse’s Assets?
- How Does Bankruptcy Affect Child Support and Alimony Payments?
- What Should I Do if My Spouse Files for Bankruptcy?
- Can I File for Bankruptcy if I Am Behind on Child Support or Alimony Payments?
- What Are the Different Types of Bankruptcy?
- What Are the Benefits and Drawbacks of Bankruptcy?
Family law disputes can be stressful and complicated. In addition to the emotional toll, there are financial concerns. The court may require a financial assessment to make decisions about custody, property division, child support, and spousal support.
If one or both parents are also filing for bankruptcy, it can be overwhelming. This article answers some of the most frequently asked questions on how bankruptcy affects family law. You should contact a local family law attorney for the best legal advice. They can give you support and the best strategy for your situation.
How Does Bankruptcy Affect Divorce?
Bankruptcy matters fall under federal law. Most family law matters are filed and decided in state court. A divorce action and a bankruptcy petition are two different matters. However, bankruptcy creates an automatic stay on marital property. This means that you will not be able to touch, sell, or divide property that you both own.
If you or your spouse file for bankruptcy during a divorce, it can complicate and delay some of those decisions. To understand what each party in a divorce owns, the divorce court will need to wait for decisions in the bankruptcy case from the bankruptcy court. For example, the bankruptcy court will need to sort out and value all the debts and assets you share with your spouse. Then, the family court can properly divide them during the family law proceedings.
Can I File for Bankruptcy and Keep My Spouse’s Assets?
If you file for bankruptcy, it is possible that you could keep some ownership of your spouse’s assets. This can be the case if you live in a community property state, like California or Texas. This may also apply when you have joint assets. In community property states, the assets a spouse acquires during a marriage are generally considered joint property. Joint property could be the property of the bankruptcy estate.
However, most state laws protect the separate property your spouse owned before the marriage. They also keep gifts and inheritances they solely received. You should consult a bankruptcy attorney for advice on how filing for bankruptcy might impact your spouse’s assets in a divorce case.
How Does Bankruptcy Affect Child Support and Alimony Payments?
A bankruptcy filing will not eliminate or postpone your domestic support obligations. You will still be responsible for these payments regardless of the nature of the support. If your income changes drastically, then you can try to modify your child support orders. You can make the new payments only after getting a modified child support court order. However, you will still be responsible for unpaid support.
What Should I Do if My Spouse Files for Bankruptcy?
If your spouse files for bankruptcy, you may want to:
- Review a copy of your credit report: This could affect your credit rating and ability to obtain future loans and financing.
- Consult a bankruptcy attorney: You must understand your legal rights and obligations, especially in community property states.
- Separate your finances: While this may not be possible due to the automatic stay, create as clean a division as possible.
- Stay informed: Monitor the court proceedings and the court decisions.
The answer to this question depends on your particular circumstances and your location.
Can I File for Bankruptcy if I Am Behind on Child Support or Alimony Payments?
Yes, you can file for bankruptcy if you have past-due child support obligations or alimony and spousal support payments. However, bankruptcy will not clear what you owe to your children or former spouse.
What Are the Different Types of Bankruptcy?
There are two main types of bankruptcy, each designed for different situations:
- Chapter 7: This is commonly called “liquidation bankruptcy.” This type of bankruptcy is for both individuals and businesses and involves selling eligible assets to pay down debts. The bankruptcy court usually discharges eligible debts. This allows individuals to keep exempt property.
- Chapter 11: This is commonly called “repayment bankruptcy” and is primarily for businesses. The bankruptcy court usually works out a plan that allows companies to reorganize and continue operating. The business will repay some of its debt as part of a repayment plan.
A bankruptcy attorney will give you the best legal advice on bankruptcy law.
What Are the Benefits and Drawbacks of Bankruptcy?
There are many benefits to filing for bankruptcy, depending on your situation. These include:
- Discharges unmanageable debts
- Provides emotional relief from the stress of debt
- Stops collection actions, including lawsuits and wage garnishments
- Resets your financial situation and gives you a fresh start
There are also some drawbacks:
- Negatively impacts your credit score
- Forces you to forfeit certain assets
- It is held in court
- Does not discharge all debts
When family law matters and bankruptcy matters coincide, it can be overwhelming. The best advice for you will come from a family law lawyer.
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