Bankruptcy And Divorce in Michigan When To File.

A divorce situation often leads to one or both spouses filing a bankruptcy. There are many situations surrounding divorce that might lead a person to consider a bankruptcy: expenses are increased as both spouses must now maintain their own households, child support and alimony obligations might affect your ability to pay other debts, you might be left solely responsible for some debts of the marriage, etc.

Here are some commonly asked questions about bankruptcy and divorce:

Is it best to file bankruptcy before or after the divorce?  It depends on your situation.  If you are still married you can file one bankruptcy together which would save you the expense of filing two separate cases.  However you may not want to file a joint chapter 13 bankruptcy if a divorce is imminent, as Chapter 13 bankruptcy ties you up in 3-5 year process.  There is also the issue of property exemptions in the bankruptcy. It may be beneficial to complete the bankruptcy before the divorce as a divorce may result in property division that leaves you with too much property to exempt in the bankruptcy.  On the other hand if married persons are living together both incomes must be included in the calculation of the means test to determine if one qualifies for bankruptcy Chapter 7, so it might be advantageous to wait in certain circumstances until after you are separated or divorced to file.  The question of whether to complete the bankruptcy or the divorce first really depends on your situation – speak to a bankruptcy attorney about which would be advantageous to you.

What if I am become divorced while in bankruptcy?  You cannot accomplish any division of property while you are in a Chapter 13 bankruptcy.  You might have to get the Bankruptcy Court’s approval before a Judgment of Divorce can be finalized. Make sure your divorce attorney knows you are in bankruptcy so that the necessary steps can be taken to notify the Bankruptcy Court if necessary.

Can child-support or alimony obligations be discharged in bankruptcy? NO, you can discharge child support or alimony obligations in either a Chapter 7 or Chapter 13 bankruptcy.   In a Chapter 13 reorganization plan child support and alimony payments are considered priority debts and must be kept current throughout the bankruptcy.  Furthermore, any child support or alimony arrearage must be paid through the chapter 13 bankruptcy and brought current during the bankruptcy.  The Court will not issue you a Chapter 13 discharge if you are not current on child support and/or alimony obligations.
What about divorce obligations that are non-support obligations, can they be discharged?   A non-support obligation is non-dischargeable in a chapter 7 case.  You will still be responsible for any of these divorce obligations even after the Chapter 7 Discharge.  However, these obligations may be dischargeable in a Chapter 13.  Bankruptcy law says that debts dischargeable in Chapter 13 include debts arising from divorce property settlements.

The interplay between divorce and bankruptcy can be complicated. If you find yourself in this situation, seek the experienced advice of the Firebaugh & Andrews for a free consultation 734-722-2999