Divorce and Bankruptcy

Money and divorce

According to the Institute for Divorce Financial Analyst, money issues consistently ranks among the top three leading causes of divorce.  If you find yourself considering divorce and the root cause seems to be disagreements over money and debt that has become unmanageable, you might consider seeking help from a bankruptcy attorney before seeking a divorce.  It is possible through bankruptcy to get rid of the debt that is causing the disagreements between you and your spouse and could possibly save your marriage.

What if you are set on divorce?

If you are considering or are involved in divorce and are also considering or are involved in bankruptcy, it is important to let your divorce lawyer know about the bankruptcy and your bankruptcy lawyer know about the divorce.  This will allow each lawyer to plan and prepare so that you get a better outcome.

Bankruptcy after divorce

Often bankruptcy is a natural consequence of separation or divorce.  The partners in couple that previously had combined incomes and consolidated expenses end up with more expenses from things like having to pay for separate homes instead of living in one home.  Likewise, the partners in the couple no longer share the purchasing power of their combined incomes.

The effect of bankruptcy on divorce proceedings

While most legal proceedings and collection actions are halted by the automatic stay in bankruptcy, most proceedings related to divorce are excluded and are allowed to go forward.  In this regard, the types of legal proceedings not stopped by bankruptcy include child custody, visitation, domestic violence and divorce, to the extent that it does not seek to divide property that is included in a bankruptcy estate.

How does bankruptcy affect alimony and child support obligations?

One of the questions that can come up after divorce is whether maintenance, alimony and child support are dischargeable in bankruptcy.  Whether you are concerned that your ex will be able to use bankruptcy to get out of paying or you are facing current and back alimony or child support due, this is a question that needs answering.  Generally speaking, maintenance, alimony and child support may not be wiped out or discharged by bankruptcy.  The bankruptcy code refers to this type of obligation as a “domestic support obligation.”  To qualify as a non-dischargeable domestic support obligation, the debt must have been established or capable of being established in a separation agreement, a divorce decree or a property settlement agreement; an order of a court of record; or, a determination made in accordance with applicable non-bankruptcy law by a governmental unit that is authorized to impose support obligations.  Quite simply, the drafters of the bankruptcy code (Congress) decided that this type of debt is too important to be wiped out in bankruptcy.  For that reason domestic support obligations get “priority” over other debts in bankruptcy.

Catching up

Child support and alimony are serious business.  Consider the case of Dennis Kern of Kosciusko, Mississippi.  According to an August 6, 2013 report from the Office of the Attorney General, Kern was sentenced to four years prison for repeatedly failing to pay $68,215.87 in back child support.  As shown by the case of Mr. Kern, willfully ignoring this type of obligation does not end well.  While bankruptcy cannot be used to wipe out these debts, a Chapter 13 bankruptcy can offer an effective tool for catching up past due support at the same time you get rid of or reduce other debts you owe.   In a Chapter 13 bankruptcy you get to keep all of your property and pay debts through the plan.  Some debts such as back child support owed directly to a child or former spouse must be, and are, paid in full.  Other debts like credit card bills are only partially paid and the remainder of the debt is wiped out or discharged at the end of the plan.

Child support owed to the government

Not all child support obligations are owed to the child or former spouse.  According to an October 2014 report by Nino Rodriguez of the Center for Family Policy and Practice, in Mississippi “$54 million in child support debt is owed to the Mississippi and federal governments – not to kids.”  In bankruptcy this type of obligation does not get the same treatment as support owed directly to the child or former spouse.  This type of debt is not dischargeable in bankruptcy, but it doesn’t have to be paid back in full through the course of a Chapter 13 bankruptcy as a domestic support obligation directly to a child or former spouse would.

The automatic stay does apply to collection efforts of Domestic Support Obligations

Although Domestic Support Obligations are not discharged by bankruptcy collection these types of debts may not be collected from the property of the bankruptcy estate.  This can make a big difference based on the type of bankruptcy used.  In a Chapter 7 collection efforts can begin on property that is not part of the estate such as wages earned after the bankruptcy was filed.  If a Chapter 13 bankruptcy is filed, wages earned over the term of the bankruptcy, either 3 years or 5 years, are considered to be part of the estate and are not subject to collection actions.  During a Chapter 13, however, these obligations are being paid off through the bankruptcy in an orderly way. It is also important to note that interest may still accrue on Domestic Support Obligations while a bankruptcy is pending.

Chapter 13 can help you get your Mississippi drivers’ license and your other Mississippi licenses back

If you are past due on child support in Mississippi you might be dealing with one or more of the many methods used by the Mississippi Department of Human Services to collect this support.  Often this entails having your drivers’ license suspended through the MDHS License Suspension Program.  Other licenses that may be suspended under this program are Mississippi occupational and professional licenses, business licenses, and Alcoholic Beverage licenses.  For many these are important licenses needed to earn a living.  They may include everything from commercial drivers’ license, to licensure of nurses, doctors, lawyers, insurance agents, real estate agents and funeral director.  Not having the license you need to work can seriously hurt your income.  But that is not all, MDHS can suspend your hunting and fishing licenses.  They can even cause you to be denied a U.S. Passport.   One of the many benefits of a confirmed Chapter 13 plan is that you will be able to get all these kinds of licenses back.

Property settlement debt

One type of debt coming out of a divorce can be discharged in bankruptcy is a property settlement debt.  This type of obligation may be discharged under Chapter 13, but not under Chapter 7.  It is important to note that the federal bankruptcy court is not bound by the determination of the state court as to what is a property settlement and what is a support obligation.  The federal bankruptcy court can make its own independent determination in this regard.

Whether you are currently going through a divorce and thinking about bankruptcy or are dealing with post divorce obligations such as alimony and child support we can help you figure out what your options are.  To schedule an initial free and confidential consultation to discuss your particular situation call 601-853-9966.