Going through a divorce is hard. It can be even harder if your spouse files for bankruptcy. This action can change many things in your divorce case. Knowing what to expect can help you feel more prepared and in control. This guide will explain how bankruptcy can affect your divorce in simple terms.
What Is an Automatic Stay in a Divorce?
A Pause on Your Case: When someone files for bankruptcy, the court issues an order called an automatic stay. This order stops most legal actions against the person who filed. It acts like a pause button on your divorce proceedings. The court does this to protect the person’s property while the bankruptcy case is sorted out.
How Long It Lasts: The stay can delay parts of your divorce, like splitting up property. The divorce court usually has to wait until the bankruptcy court gives permission to move forward. This means your divorce could take longer than you planned. A lawyer can ask the bankruptcy court to lift the stay so your divorce can continue.
- Property Division Halts: The court cannot divide your house, cars, or bank accounts.
- Debt Division Stops: Decisions about who pays which bills are put on hold.
- Court Dates May Move: Your scheduled hearings might be postponed.
- Child Support Continues: The stay does not stop child support payments.
- Spousal Support Continues: Orders for spousal support are also not stopped.
- Parenting Time is Not Affected: Your time with your children is not changed by the stay.
Real-Life Example: Sarah and Tom were in the middle of their divorce. They were about to decide how to split their house. Tom filed for bankruptcy, which started an automatic stay. Their divorce case had to pause until a judge said they could talk about the house again.
How Does Bankruptcy Change Shared Debts?
Getting Rid of Debts: Bankruptcy is a way for people to get rid of certain debts. If you and your spouse have shared debts, this can really change things. A bankruptcy court can discharge, or wipe out, many types of debt. This includes things like credit card bills and medical bills.
Your Share of the Debt: Let’s say your spouse had a credit card with a large balance. Even if you both used it, the debt might be in their name. If they file for bankruptcy, the court might wipe out that entire debt. This can be a good thing for you, as you may no longer have to pay for your half.
- Credit Card Bills: High balances on credit cards can often be cleared.
- Personal Loans: Unsecured loans from banks may be wiped out.
- Medical Bills: Large hospital or doctor bills can be discharged.
- Joint Debts: If a debt is in both your names, you might still have to pay it.
- Secured Debts: Car loans and home loans are tied to property and work differently.
- Court Orders: The divorce court will look at which debts were cleared.
Real-Life Example: Mike’s name was on a $50,000 credit card bill. During his divorce from Jane, he filed for bankruptcy. The bankruptcy court discharged the whole bill, so Jane did not have to worry about paying her share of that debt.
Will Bankruptcy Stop Support Payments?
Support is a Priority: Some payments cannot be stopped by bankruptcy. Child support and spousal support are special kinds of debts. The law sees them as very important for the well-being of the family. Because of this, they are not dischargeable in bankruptcy.
Payments Must Continue: Your spouse must keep making any court-ordered support payments. The automatic stay does not apply to collecting these payments. You can still expect to get the money you and your children need. If payments stop, your family law attorney can help you take action.
- Child Support: This money is for the children and cannot be wiped out.
- Spousal Support: This support for an ex-spouse is also protected.
- Past-Due Support: Any support payments that are late must still be paid.
- Income Withholding: Money can still be taken directly from your spouse’s paycheck.
- Court Enforcement: The family court can still enforce support orders.
- Future Payments: The duty to pay support continues after the bankruptcy ends.
Real-Life Example: David filed for bankruptcy during his divorce from Lisa. He thought it would stop his $800 monthly child support payment. The court told him that child support is not a debt he can get rid of, and he had to keep paying.
Do I Need Two Lawyers Now?
Different Types of Law: Divorce and bankruptcy are two very different areas of law. Divorce law, or family law, is handled in state courts. Bankruptcy law is federal law and is handled in a special federal court. Most lawyers focus on only one of these areas to be very good at what they do.
A Team Approach: If your spouse files for bankruptcy, you will likely need help from two lawyers. Your divorce lawyer will handle the family law parts of your case. A bankruptcy lawyer will handle the parts related to the bankruptcy filing. The two lawyers will need to work together to protect your interests.
- Divorce Lawyer: Handles parenting time, support, and final divorce papers.
- Bankruptcy Lawyer: Handles the automatic stay, debts, and federal court rules.
- Coordination: Both lawyers talk to each other to make a plan for your case.
- Protecting Your Property: The bankruptcy lawyer helps make sure your share of things is safe.
- Understanding Debts: They explain which debts will be wiped out and which will stay.
- Following Rules: They ensure everything you do follows the strict rules of bankruptcy court.
Real-Life Example: When Maria’s husband filed for bankruptcy, her divorce lawyer told her to find a bankruptcy specialist. Her divorce lawyer continued to work on the parenting plan. Her new bankruptcy lawyer went to federal court to protect her share of their savings account.
Why Can’t One Lawyer Handle Both?
Specialized Knowledge: Each area of law has its own complex rules and procedures. A good divorce lawyer knows all the details of Michigan family law. A good bankruptcy lawyer knows all the rules of the federal bankruptcy system. It is very rare for one person to be an expert in both fields.
A Simple Analogy: Think of it like going to the doctor. You would not ask your heart doctor to fix your teeth. You would go to a dentist. In the same way, you need a lawyer who specializes in the specific legal problem you are facing. This ensures you get the best help possible. The video, “What do you do if your spouse files bankruptcy during your divorce?”, explains this in more detail.
- State Law: Divorce lawyers work with laws made by the state of Michigan.
- Federal Law: Bankruptcy lawyers work with laws made by the U.S. government.
- Different Courts: Each case is heard in a completely different court system.
- Deep Understanding: A specialist knows the fine points of their area of law.
- Better Strategy: They can create a better plan to help you reach your goals.
- Avoids Mistakes: A specialist is less likely to make mistakes that could hurt your case.
Real-Life Example: Ben asked his divorce lawyer to handle his wife’s bankruptcy filing. The lawyer explained that he was an expert in family law, not bankruptcy. He referred Ben to a trusted bankruptcy lawyer to make sure Ben’s case was handled correctly in both courts.
How Does This Affect Splitting Our Property?
Everything is Part of the Estate: When someone files for bankruptcy, all their property becomes part of what is called the bankruptcy estate. This includes all the property you own together as a married couple. A person called a trustee is put in charge of this estate.
Who Decides What Happens: The bankruptcy court and the trustee have control over this property. The divorce court cannot make final decisions about who gets what until the bankruptcy case is over or the stay is lifted. This is often the biggest cause of delays in a divorce case. Experienced divorce attorneys in Michigan know how to work with the bankruptcy court to move things along.
- The House: Your home is part of the bankruptcy estate.
- Bank Accounts: All money in joint accounts is included.
- Personal Items: Cars, furniture, and other valuables are also part of the estate.
- Trustee’s Job: The trustee may sell some property to pay back creditors.
- Exempt Property: Some property is protected by law and cannot be sold.
- Divorce Court Waits: The divorce judge waits for the bankruptcy court to finish its work.
Real-Life Example: During their divorce, Anna’s husband declared bankruptcy. The bankruptcy trustee took control of their shared vacation cabin. Anna and her husband had to wait for the trustee to decide if the cabin would be sold before their divorce could be finished.
Can Filing for Bankruptcy Be a Good Thing?
A Fresh Start with Debts: While it causes delays, a bankruptcy filing can sometimes have a good outcome. If you have a lot of shared debt, your spouse’s bankruptcy might wipe it all out. This could leave you with a clean slate and fewer bills to worry about after the divorce.
Less to Fight About: With major debts gone, there is less for you and your spouse to argue about. For example, if a $30,000 joint credit card bill is discharged, you no longer have to fight over who will pay it. This can make the property division part of your divorce simpler and less stressful.
- Reduced Financial Stress: Getting rid of large debts can bring a lot of relief.
- Easier Negotiations: With fewer debts to divide, reaching an agreement can be easier.
- Clearer Financial Picture: You will know exactly which debts are left to deal with.
- Focus on the Future: You can start your new life without old debt holding you back.
- Simpler Property Division: The divorce court has a smaller, cleaner list of debts to split.
- Potential for Savings: You avoid paying thousands of dollars toward old bills.
Real-Life Example: Laura was worried about a large joint loan she and her husband took out. When he filed for bankruptcy, the loan was discharged. This was a huge relief for Laura, as it freed up money she could now use for her future.
What Should I Do to Protect Myself?
Get Legal Advice Right Away: The most important step is to talk to a lawyer. As soon as you find out your spouse is filing for bankruptcy, you need expert advice. A lawyer can explain how the laws apply to your case and what you should do next. This is true whether you are trying to figure out if you should file for bankruptcy before or after divorce.
Keep Good Records: It is very important to have clear records of all your money and property. Make copies of bank statements, pay stubs, loan documents, and property titles. This information will be vital for both your divorce lawyer and your bankruptcy lawyer. Good records help your lawyers protect your rights.
- Hire a Bankruptcy Lawyer: Find a specialist who can represent you in federal court.
- Communicate with Your Divorce Lawyer: Keep your family law attorney updated on everything.
- Do Not Agree to Pay Debts: Do not let your spouse pressure you into taking on debts that might be discharged.
- Track All Spending: Keep a record of where money is going.
- Gather Financial Papers: Collect all documents related to your money and property.
- Be Honest with Your Lawyers: Give your legal team all the information they ask for.
Real-Life Example: When Kim learned her husband planned to file for bankruptcy, she immediately called her lawyer. Her lawyer told her to gather all their financial papers. Because Kim was organized, her new bankruptcy lawyer was able to quickly protect her share of their retirement funds.
Extra Insights
Strategic Filings: Be aware that some people file for bankruptcy to try to gain an advantage in a divorce. They might hope to delay the case or get out of paying certain debts. Having a good lawyer helps you respond to these tactics and ensures the process stays fair.
Long-Term Credit Impact: A bankruptcy filing will affect your spouse’s credit for years. If a lot of your shared debt is discharged, this could also impact your own credit, especially on joint accounts. It’s a good idea to check your credit report and understand how to rebuild it after the divorce.
Frequently Asked Questions
1. Will I lose my house if my spouse files for bankruptcy?
Not always. The bankruptcy court will look at how much the house is worth and how much is owed, but there are laws to protect a primary home.
2. Can my spouse get out of paying me from their retirement plan?
Generally, no. Funds in a retirement account like a 401(k) have special protections and are not usually touched in a bankruptcy.
3. What if we own a business together?
A shared business makes things more complex. A bankruptcy trustee will look at the business’s value and debts to decide what happens to it.
4. Does the type of bankruptcy matter?
Yes, there are different types, like Chapter 7 and Chapter 13. Each one treats debts and property differently, so it is important to know which one was filed.
5. How long will the bankruptcy delay my divorce?
The delay can be a few months or more than a year. It depends on how complex the bankruptcy case is and how quickly your lawyer can act.
6. Can I still get divorced while the bankruptcy is happening?
Yes, the court can still grant the divorce itself. But it cannot make final orders about property until the bankruptcy court allows it.
7. What happens if my spouse filed bankruptcy right before filing for divorce?
This can make the divorce process cleaner. If debts are already wiped out, there is less to divide when you get to court.
8. Does my ex filing bankruptcy mean I will not receive alimony or child support?
No, it does not. As explained in this video about support payments, these debts are not dischargeable and must be paid.
9. Will I be told when my spouse files for bankruptcy?
Yes, you are considered a creditor and must be formally notified. You will get official papers from the bankruptcy court in the mail.
10. Can we file for bankruptcy together during a divorce?
Married couples can file a joint bankruptcy. However, it may not be a good idea if you are in the middle of a divorce due to conflicts.
11. What if a debt is only in my name?
If a debt is only in your name, you are still responsible for it. Your spouse’s bankruptcy will not get rid of your personal debt.
12. Where can I find lawyers to help me?
You can ask for referrals or search for local lawyers. Our firm focuses on family law but can help you find a trusted bankruptcy specialist.
If you are facing a divorce complicated by bankruptcy, you do not have to handle it alone. We are here to guide you through the family law process and can connect you with the experts you need. For help with your case, please reach out to us.
Phone: (248) 590-6600 (Call/Text)
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Website: Visit ChooseGoldman.com for more information.