How to File Bankruptcy After a Divorce

After a divorce, it’s not unusual for one or both former spouses to file for bankruptcy. Sometimes, a couple has financial problems during their marriage that lead to divorce and eventually bankruptcy. Other times, the financial strain of maintaining two separate households and paying for the divorce itself leads spouses to consider bankruptcy.

Either way, divorce and bankruptcy often go hand-in-hand. Filing bankruptcy after a divorce involves a few unique issues beyond those in a typical bankruptcy. This article covers the special considerations that apply to filing bankruptcy after a divorce and how to navigate these issues in your case.

What’s Different About Bankruptcy After a Divorce?

A divorce is a legal action with wide-ranging consequences. Divorce affects your property rights, your debts, your expenses, and sometimes your income. All of these are key elements of a bankruptcy case. So divorce can have a big impact on your bankruptcy.

Your Divorce Decree

Your divorce decree is the final court order that makes your divorce complete. Depending on where you live, it could also be called a decree of dissolution, a judgment of divorce, or a bill of divorce. It might be a single document, or it might incorporate other documents, such as a property settlement agreement, parenting plan, or other related agreements and orders.

Your divorce decree is full of information that’s important for your bankruptcy case. Not surprisingly, your bankruptcy trustee will want to review it, so you’ll need to send them a copy at least seven days before your meeting of creditors. It’s important to understand which parts of your divorce decree affect your bankruptcy and how to include that information correctly in your bankruptcy forms.

Property Division Provisions

Your divorce decree includes a list of all the assets you and your former spouse owned during your marriage and an order dividing those assets between the two of you. Make sure that all the assets you received in the divorce decree are listed on your Schedule A/B form, in addition to any new assets you’ve acquired after the divorce. 

If you no longer have an asset that was awarded to you in the divorce decree, be prepared to explain what happened to the asset. If you sold or gave away any assets in the two years before filing bankruptcy, you’ll need to list that transfer in your Statement of Financial Affairs.

Debt Division Provisions

List all the debts that are listed in your divorce decree in your bankruptcy forms. Include all joint debts as well as any new debts you’ve incurred after the divorce. If you live in a community property state, you should include debts from your marriage even if they’re not in your name. When you list these debts in your bankruptcy forms, include a note for each explaining how the debt was divided in your divorce decree.

For example, some couples are ordered to split all debts equally. Or a debt may be assigned to one spouse, meaning that spouse is ordered to pay that debt. Pay extra attention to whether your divorce decree includes an indemnification clause for some or all debts. An indemnification clause is sometimes called a “hold harmless” provision.

Here’s an example of how an indemnification clause works: Say you and your spouse had a joint credit card account. The debt was assigned to you, meaning you were ordered to pay that debt. You file bankruptcy. Bankruptcy law requires you to list all your debts, including that credit card. 

When your bankruptcy is discharged, the credit card company can’t collect that debt from you anymore. So the credit card company takes collection action against your former spouse, whose name was also on the account. The credit card company doesn’t have to follow your divorce order, so they can legally collect the full balance from your former spouse. 

If your divorce decree contains an indemnification clause, then you’re legally obligated to pay your former spouse back for any part of that debt the credit card company collected from them. If you don’t, you’ll be in contempt of your divorce decree, and your former spouse could sue you to enforce their indemnification rights. Indemnification can complicate your bankruptcy. If your divorce decree includes an indemnification clause, consider speaking with a knowledgeable bankruptcy attorney to make sure you fully understand your rights and obligations and don’t end up in contempt of court.

Debt Arising Out of the Divorce

The previous section discussed debts that arose during your marriage and were divided or allocated in your divorce decree. But what about debts that you incur because of your divorce case? This usually occurs as one of three types of debts:

• A lump-sum award of child support or alimony or past-due alimony or child support that accrued while the divorce was pending.

• Debt you owe to your spouse as part of a property settlement order. Example: You got the house and were ordered to pay your former spouse a lump sum to buy out their share.

• Attorney fees you owe to your divorce lawyer for representing you in the divorce.

Debt for child support or alimony is not dischargeable in bankruptcy, even though you must still list it in your bankruptcy forms. If a debt isn’t dischargeable, you still owe that debt even after your bankruptcy. Debt that is part of a property settlement is not dischargeable in a Chapter 7 bankruptcy, but it is dischargeable in a Chapter 13 bankruptcy. In Chapter 13, though, you could still have to pay some or all of this debt through your repayment plan, since it’s treated the same as all your other unsecured debts. 

Attorney fees you owe to your divorce lawyer for representing you in the divorce are dischargeable in either chapter of bankruptcy. But if you were ordered to pay any of your ex-spouse’s attorney fees, those fees could be considered part of an award of support. In that case, those fees wouldn’t be dischargeable. 

How To File Bankruptcy After a Divorce

The information in this section is meant to supplement Upsolve’s general filing guide. You should still refer to the filing guide for detailed instructions for filing bankruptcy. This section highlights some additional things you should be aware of when filing bankruptcy after a divorce. Like the filing guide, this section focuses on filing Chapter 7. But most of the information will also pertain to filing Chapter 13.

Collect Your Documents

There are a few additional documents you’ll need to gather beyond the usual list if you’re filing bankruptcy after a divorce. As mentioned above, you’ll need a copy of your entire divorce decree, including any additional orders about child support, alimony, property division, indemnification, legal fee awards, or related matters. You may also need bills from your divorce attorney showing fees you owe.

Take a Credit Counseling Course

Even if you were still married when you did your credit counseling, you can use the same certificate as long as you file within 180 days after the certificate date.

Complete Your Bankruptcy Forms

Completing your bankruptcy forms is a big job since there are over 20 individual forms to fill out. The official form instructions and Upsolve’s bankruptcy form guide can help you understand and complete these forms. In addition, pay extra attention to these forms and questions:

• Voluntary Petition (Form 101): If your divorce is final, you’re no longer married, so you don’t need to include spouse information (unless you’ve remarried since your divorce). If you changed your name after your divorce, include your married name in Box 2.

• Schedule A/B (Form 106A/B): If you’re entitled to property settlement or support payments that you haven’t received yet, list them as assets on Line 29.

• Schedule E/F (Form 106E/F): If you owe past-due support or alimony payments, list them as debts in Part 1. If you owe property settlement payments that you haven’t paid yet, list them as debts in Part 2.

• Schedule H (Form 106H): If you lived in a community property state during your marriage, you’ll need to fill in your former spouse’s name and current address on Line 2, even if they weren’t a co-signer on any of your debts. If you and your ex-spouse have debts that are in both names, mark “Yes” on Line 1 and complete the information about those debts in the spaces provided.

• Schedule I (Form 106I): Include any alimony and child support payments you regularly receive on line 8c. Don’t include support that your ex-spouse is ordered to pay if they don’t regularly pay it. If you have support or alimony payments deducted from your pay, include that on line 5h.

• Schedule J (Form 106J): If you pay alimony or support payments that aren’t deducted from your paycheck, include those on Line 18.

• Statement of Financial Affairs (Form 107): If you moved after your divorce and your move was within the past three years, include your previous address on Line 2. Mark “yes” on Line 3 if you live or lived in a community property state. On Line 9, include information about your divorce case or any other legal proceedings that happened within the past year. If you transferred any property in the past two years, as part of your divorce or otherwise, include information about the transfer on Line 18. This includes property that you transferred to your former spouse, even if you just changed the title from both names to one name.

File Your Case

You must file your bankruptcy in the federal district where you’ve lived for the most time during the past 180 days. If you moved in the past six months due to your divorce, confirm that you’re filing in the correct bankruptcy court.

Mail Documents to Your Trustee

Along with the documents required in all cases, you should also include a copy of your divorce decree and any other divorce-related documents you think are relevant. Your trustee may also request additional documents. They might also request contact information for your ex-spouse.

Attend Your 341 Meeting

Creditors usually don’t attend 341 meetings, especially in Chapter 7 cases. The odds of a creditor showing up are a bit higher if you and your ex-spouse were co-signers on a secured debt, such as a car loan. Still, there’s nothing to worry about. Usually, the creditor just wants to find out who’s keeping the car and who’s making the payments. Or if you’re both giving up the car, the creditor might want to set up a time to pick it up. Your former spouse will be notified of the meeting. They can attend but aren’t required to be there.

Deal With Your Car

If you and your ex-spouse were co-signers on a car loan, and your former spouse got the car in the divorce, you’ll probably want to surrender your rights to the car. That way, you’re not legally responsible for the loan if your ex doesn’t pay. 

If you and your ex-spouse were co-signers on the car loan and you were awarded the car, you can keep the car and keep paying for it. The loan must be current to keep the car. If you’re behind on the payments, you can surrender the car. You won’t owe anything else to the auto lender, but they can pursue your ex-spouse for any deficiency balance. A deficiency balance is any amount left on the loan balance after deducting the fair market value of the car you turned in. In either scenario, make sure you don’t run afoul of an indemnification clause or other provision of your divorce decree.

Using Bankruptcy Exemptions To Protect Your Assets

If you moved to a different state in the past two years as a result of your divorce (or for any reason), you won’t be able to use your new state’s exemption laws. Instead, you’ll have to use the federal bankruptcy exemptions. If you’ve listed any divorce-related claims as assets, remember to claim the appropriate exemptions if available. Claims for alimony, support, or separate maintenance that you haven’t received yet are exempt under 11 U.S.C. Section 522(d)(10)(D) if they’re necessary to support you or your dependents.

Pros and Cons of Filing Bankruptcy While a Divorce Is Pending

What if you’re considering bankruptcy, but your divorce isn’t final yet? Under bankruptcy law, you’re still married until your divorce is final. Choosing to file bankruptcy while your divorce is pending has both benefits and drawbacks.

The major downside to filing bankruptcy while your divorce is pending is that the Bankruptcy Code’s automatic stay provision will prevent your divorce court from moving forward until after the bankruptcy is complete. This can cause a significant delay in finalizing your divorce. Note that the automatic stay won’t stop the divorce court from ordering or enforcing support payments. 

In a jointly filed bankruptcy, you’ll need to include both spouses’ income and expenses in your bankruptcy forms. This can be either a benefit or a drawback depending on your circumstances. If you and your spouse are already living in separate households, you must complete both Schedule J and Schedule J-2 to show the living expenses for each household.

One benefit of filing bankruptcy before your divorce is final is that you can file jointly with your spouse. Joint bankruptcy is only allowed while you’re still legally married. A joint case means just one filing fee, and just one attorney fee if you’re using a bankruptcy lawyer. You’ll also be able to use bankruptcy exemptions that are only available to married couples. In some cases, you may be able to protect more of your property by filing together.

Another benefit is being able to eliminate a lot of your marital debt in bankruptcy. This can make your divorce proceedings quicker and easier since you won’t have to divide debt that neither of you owes anymore. You can usually wipe out all unsecured debt, such as credit cards and medical bills. If you have secured debts that you both want to walk away from, such as a mortgage or car loan, you can also eliminate those, which can reduce headaches later in your divorce.

Let’s Summarize…

In many ways, filing bankruptcy after a divorce isn’t that different from filing bankruptcy any other time. Still, the provisions of your divorce can have a significant impact on the assets, debts, income, and expenses you include in your bankruptcy forms. Understanding how to properly incorporate the results of your divorce into your bankruptcy case will help the bankruptcy go much more smoothly. If you and your former spouse have a good relationship, it’s also possible to file bankruptcy together before your divorce is final. This could be a smart choice, depending on your circumstances.