Bankruptcy and Divorce
Bankruptcy and divorce are both exceptionally stressful events for most people. When you’re facing both at the same time, it can feel like your life will never be stable again. You undoubtedly have many questions about how one affects the other. The Cate Law Firm is here to ensure that you understand the process and your rights when one spouse decides to file bankruptcy and the other does not. This can happen because state law doesn’t require the names of both spouses on the bankruptcy petition.
How Filing for Bankruptcy Affects Divorce Proceedings in South Carolina
When a person files for bankruptcy in South Carolina, it creates a condition known as an automatic stay as well as a bankruptcy estate. That means that creditors cannot collect on anything not covered under a lawsuit or criminal claim, including all property belonging to the petitioner. The automatic stay also prevents the family court from moving forward with division of property until the bankruptcy proceedings conclude or the automatic stay expires. However, the automatic stay doesn’t apply to the following:
- Actions for a divorce unless the bankruptcy petition includes a claim to divide property and debts
- Establishing paternity, custody, or child support
- Establishing a new order or modifying an existing order for alimony and/or child support
- Actions regarding any act of domestic violence
- Actions regarding property not included in the bankruptcy filing
Division of Marital Debt When One Spouse Files Bankruptcy
The way that the bankruptcy court divides marital debts depends on whether one of the spouses filed Chapter 7 or Chapter 13. With Chapter 7, the filing spouse is relieved of all debts except for child support and alimony. With Chapter 13, a judge from the bankruptcy court creates a repayment plan that allows the filer to repay debtors over time. This typically allows him or her to keep some assets and for the court to discharge others.
If you come to a property settlement with your spouse and he or she then files for bankruptcy the implications of this are as follows:
- The bankruptcy filer may be able to avoid making payments to the other spouse if the family court ordered those payments as part of a divorce settlement
- The non-filing spouse could be liable for debts assigned to the filing spouse from the family court because the creditor isn’t bound by the family court order and wasn’t a party to the divorce
Bankruptcy Doesn’t Erase Child Support or Alimony Obligations
Both parents must contribute to the financial support of their minor children regardless of whether either of them has filed for bankruptcy. If a family court awarded alimony to one of the spouses, filing bankruptcy has no effect on that obligation either. The court will still use the South Carolina Child Support Calculator to determine the monthly obligation for the non-custodial parent. However, he or she could attempt to petition the family court later to lower the payment for either obligation based on the bankruptcy filing and his or her financial condition at the time.
Seek Experienced Legal Help for These Complicated Issues
It can be challenging to know the best course of action to protect yourself and your children financially at this difficult time. If both you and your spouse are in deep financial debt, consider filing bankruptcy together before the divorce. This makes it easier to divide marital debts and property later. It also protects you from having to assume all debts if your spouse files for bankruptcy once the family court grants a divorce.
It’s not uncommon for one spouse to attempt to file for bankruptcy during divorce to get out of paying debts even when he or she can afford them. The bankruptcy court enforces strict rules for qualification and will quickly discover your spouse’s dishonesty and bar him or her from proceeding. Lastly, it’s in your best interest to work with a family law attorney now if you’re concerned that your spouse may file bankruptcy after the divorce. You need legal counsel to ensure a fair division of property and debts.
The Cate Law Firm offers free consultations to all new clients. Please contact our office in Spartanburg, South Carolina at 864-585-4226 to request your appointment.