SANTA ROSA FAMILY LAWYER BLOG
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WHAT HAPPENS WHEN AN EX-SPOUSE FILES FOR BANKRUPTCY?

Credit Card.jpgAccording to the American Bankruptcy Institute, in 2011, there were a total of 1,362,847 personal bankruptcy filings across America. Of these personal bankruptcy filings, 232,593 were filed within the State of California.

There are many factors that can lead to bankruptcy including: medical expenses, job loss, uncontrolled spending, unexpected disasters, and divorce. The divorce process comes with significant financial burdens. Typically, both partners will incur sizeable legal fees and will have to maintain separate households. In addition, the division of marital assets and child support and/or alimony obligations can impact an individual’s financial health when a marriage dissolves.

For example, last year one of the lead attorneys responsible for securing a $660 million settlement in a clergy abuse case in Los Angeles filed for bankruptcy. He cited legal bills associated with his divorce, totaling nearly $8 million, as the primary reason for filing bankruptcy. The five-year legal battle between the attorney and his former wife centered around her entitlement to half of his $13 million earnings from the settlement.

CALIFORNIA FAMILY LAW ATTORNEYS CAN HELP

You should consult with a Family Law Attorney immediately if you are seeking a divorce, and your former partner is considering or has filed for bankruptcy. You may have certain legal obligations or entitlements related to your former partner’s bankruptcy filing. An attorney can advise you on how your partner’s bankruptcy filing may impact you.

Given the mounting financial pressure that comes with the divorce process, it is not uncommon for one or both partners to file for bankruptcy to avoid payment of individual debts, community debts, and other financial obligations they may not be capable of meeting.

DOMESTIC SUPPORT OBLIGATIONS

In 2005, the Federal government enacted the Bankruptcy Abuse Prevention and Consumer Act. The purpose of this new law was to prevent former spouses from filing for bankruptcy in order to avoid paying child support and/or alimony obligations. Under the new law, domestic support obligations such as child support and alimony are considered priority claims that cannot be discharged during bankruptcy. Therefore, if your former partner has a child support or alimony obligation to you, it will either be paid in the bankruptcy or survive as a debt to you.

PROPERTY SETTLEMENT DEBTS

In addition, under the Bankruptcy Abuse Prevention and Consumer Act, property settlement debts are non-dischargeable in a Chapter 7 bankruptcy. However, this type of debt remains dischargeable if your former spouse files for a Chapter 13 bankruptcy.

CREDIT CARD DEBT

California is a community property state. In a community property state, property acquired during the marriage is owned by both partners, and debt acquired during the marriage is owned by both partners as well. This is true even if your name is not on the debt. Therefore, if your former partner files for bankruptcy and does not pay their credit card debt, the lender can seek payment from you. This is the case even when your former spouse agrees to pay the debt during divorce settlement negotiations, because lenders do not recognize divorce court orders.

Related Blog Posts:
Maintaining Health Insurance After Divorce
Dividing Retirement Accounts in a Divorce


The experienced lawyers in the Family Law practice division at Beck Law P.C., can help you navigate these issues and ensure that your rights are protected. Call our Santa Rosa law office at 707-576-7175 to arrange for a free and confidential consultation.

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