Divorce and Bankruptcy

For many married couples, debt and divorce might go together at the same time. Unsecured and unmanageable debts are common reasons for marriage dissolution in many cases. Other couples feel frustration as their expenses double when one spouse decides to move out. They maintain two households, but their monthly income remains the same. 

For married couples or recently divorced individuals, debt burdens can be overwhelming, and filing for bankruptcy can provide a way out. In some cases, the bankruptcy process enables you to get out of debt by giving up some properties in return. Missouri declares specific assets, such as home equity, clothing, car equity, and other items, to fall under bankruptcy exemptions. You can keep or exempt property if you file for bankruptcy.

What Should I File First?

If you and your spouse have reached the point where bankruptcy and divorce are both considerations, the most common settlement question that our legal team gets is: what should you file first? Many believe that divorce must be filed before bankruptcy to properly deal with debts outside of marriage. However, as a general rule, most cases require bankruptcy before divorce. To make the right decision, you definitely have to talk to an experienced bankruptcy attorney.

Whether you file for Chapter 13 or Chapter 7 bankruptcy, you must first wipe your debt problems out before getting divorced. This is because: (1) eliminating debt implies that the issues in divorce may be reduced, and (2) you cannot extinguish the debt later if the court orders you to pay it following the divorce decree and marital settlement agreement.

Knowing The Limitations of Bankruptcy

If you file a bankruptcy petition amid divorce proceedings, you might still be held liable for the debts assigned to your ex-spouse by the family court. If your name is stated in the loan, the creditors will consider it valid. If your ex-spouse misses or stops making payments, the creditor or collection agencies will go after you. Spousal maintenance, such as alimony, is also one of the common reasons why you should file for bankruptcy before getting divorced. These are not dischargeable in any bankruptcy chapter. 

Discharging Marital Debt

Determining which debts must be assigned to each spouse in divorce can be expensive and stressful. Ordering the other spouse to settle a specific debt in a divorce decree does not change the other spouse’s liability to the debt collectors. 

For instance, your ex-wife was ordered by the court to pay using a joint credit card. If she refuses to pay it or files bankruptcy, the creditor can legally collect your debts. If you end up settling the debt, you have the legal right to be reimbursed by your ex-wife because she breached the divorce decree. This is accurate even if she filed a bankruptcy petition since she can still discharge her obligation to pay the lender or creditor. Still, according to the divorce decree, she cannot discharge her obligations to you.