Learn how to file bankruptcy after a divorce. This supplements Upsolve's Guide on how to file Chapter 7 bankruptcy and highlight how to handle your divorce in the forms.
Written by Attorney Eva Bacevice.
Updated September 23, 2020
It’s not at all uncommon for either or both spouses to file for bankruptcy following a divorce. It could be that issues in the marriage led to financial problems. Or perhaps financial strains added to marital issues. Either way, the two often go hand-in-hand. If you are thinking of filing for bankruptcy after a divorce, there are several things you should keep in mind.
Things to look for in your divorce decree
First, if your divorce is complete you should review your official divorce decree for information. Additionally, even though the divorce decree is not filed with the court, your case trustee will request a copy of it before your 341 meeting, which happens approximately 30 days after the case is filed.
Allocation of debts
You’ll want to look at the allocation of debts in particular. Did you agree to split all debts equally? Are certain debts assigned to only one party? Make certain that you list all debts in your paperwork, even if some were assigned in the divorce to your spouse. In that case, check if the divorce decree includes an indemnification clause. This means that one spouse is agreeing to make the other spouse whole if they suffer losses from a joint debt. For example, in a divorce decree, one spouse might agree to take on a joint car loan and indemnify the other spouse from any losses. This is an agreement between spouses, however, and third parties are not held to it. So, if in our example one spouse gets behind on car payments, the car lender could still sue both spouses to collect the money. If spouse two is made to pay the debt, they can then sue spouse one under the indemnification clause to recoup the money. If you have an indemnification clause in your divorce decree, consider speaking to a knowledgeable bankruptcy attorney in your area to make sure bankruptcy can give you the relief you’re looking for.
List of Assets
With any bankruptcy filing, you are required to include a detailed listing of all of your assets in your official paperwork. You will be signing under penalty of perjury that all of the information contained in your bankruptcy paperwork is true and accurate to the best of your knowledge, so it’s important to disclose everything. Part of the bankruptcy process will involve a bankruptcy trustee reviewing your paperwork and documents to ensure that everything is correct. The Trustee will want to review your divorce decree and check that division of property against the assets you are listing.
Debts from divorce
Some debts from a divorce proceeding can be eliminated in your bankruptcy. If you are unable to afford your divorce attorney fees, those can be included and discharged at the end of your case. Property settlements, however, are not as straightforward and depend on the type of bankruptcy you file. If you file Chapter 7 (or “liquidation”) bankruptcy then any money you owe your spouse from the property settlement is not a dischargeable debt. You will still owe that money after your bankruptcy is complete. If you file for Chapter 13 bankruptcy, however, you can include money owed to your ex-spouse as part of the property settlement as an unsecured debt, which will be discharged at the end of your Chapter 13 repayment plan.
Pros and cons of filing bankruptcy while a divorce is pending
If your divorce is not yet final, it may make sense to address debt relief and file for bankruptcy before divorcing. There are pros and cons to this, and it’s important to consider all of them carefully. First, as soon as you file a bankruptcy case something called the automatic stay goes into effect. This stops any other court proceeding from continuing until the bankruptcy is complete. The automatic stay does not stop the court from creating or enforcing any support payments. It does, however, include all other aspects of divorce cases and can cause a significant delay in completing that proceeding, so it’s important to consider your priorities.
If, however, you have a decent relationship with your soon to be ex, there can be several benefits to addressing your financial situation before your divorce in a joint bankruptcy. First, you can save on court fees by only filing one case, which will save on attorney fees as well as administrative fees from the court. Second, you will be able to discharge some (or all) of your unsecured marital debt, like credit cards and medical bills so that you can both get a fresh start. This can be key because marital debt refers to debts incurred during the period of the marriage and having no marital debt to deal with makes any settlement agreement more straightforward. Finally, you might be able to protect more property by filing together instead of filing individually. You can protect property in bankruptcy by using exemptions. Many states will allow a married couple filing jointly to double most of the exemptions which can result in more property being protected overall. If you decide to work with a bankruptcy attorney, you can and should get their legal advice for the order of legal proceedings.
How to file bankruptcy after a divorce
Let’s take a look now at how to file bankruptcy after a divorce. This will supplement our guide on how to file Chapter 7 bankruptcy and highlight what to look out for as you’re preparing to file.
❗❗ The forms ask if the person filing for bankruptcy is married and to include information about a spouse. After someone is divorced they no longer have a spouse unless they were remarried. If you have not remarried, the correct answer to the question of "are you married" is "no" even though you were married in the past.❗❗
Collect your documents
Your first step is to collect the documents you will need to determine your eligibility for Chapter 7 under the Bankruptcy Code and fill out your bankruptcy forms. This should include any documents about your income for the last six months, such as pay stubs and any other proof of income. Since you’re no longer married, you only need this information about yourself. You'll also need your last two years of tax returns (both federal and state) and the most recent statements for any financial accounts and any documents regarding your assets. It’s also very important to include a complete list of all of your debts. Getting a copy of your credit report (which you can get for free here: AnnualCreditReport.com) can help ensure that you list all creditors and collection agencies you owe money to.
With a recent divorce, you’ll also want to include documents such as your divorce decree, any documentation about your (or your exes) support obligations. Be sure to include the property settlement, attorney fee awards, and bills from your divorce attorney.
Take credit counseling
Your next step is to take the first of two required debtor education courses. The first course must be completed before you file your case. It is important to use one of the approved credit counseling agencies for this, and many will offer the opportunity to sign up and pay for both at the same time. You’ll receive a certificate that you need to file along with your bankruptcy paperwork.
Complete the bankruptcy forms
Next, you’ll want to tackle the bankruptcy forms. This can take a little time as there are usually more than 20 documents to complete, including your bankruptcy petition, all of the schedules, the statement of financial affairs (SOFA), and more.
After a recent divorce, there are some specific details to note. On the first page of your bankruptcy petition, you fill out personal information, beginning with your legal name. There’s space below specifically where you can list any name changes if you recently took back your maiden name after a divorce.
On Schedule I, list your income, including any child support or alimony payments you may receive from your ex-spouse. Since you're not longer married, their income is not listed on this schedule.
If you decide to file a joint case before completing your divorce, be sure to keep in mind that you can’t double your household expenses unless you are living in two different residences. If that is the case, then you’ll need to also file Schedule J-2 for separate households.
On Form 107 (the Statement of Financial Affairs) you'll need to disclose any legal proceedings (including divorce) that took place in the last year. If you transferred any property to your ex-spouse as part of the divorce, you'll want to make sure this is disclosed on the Statement of Financial Affairs as well.
Get your filing fee and file your case
Once you’ve completed the paperwork, you’ll need to get together your filing fee. The current filing fee for Chapter 7 is $335, which is due in full when you file your Chapter 7 bankruptcy case with the court. It’s the same amount for single and married filers. The payment must be paid by cashier’s check or money order, you can’t make this payment using a credit or debit card. If you feel that you can’t afford this fee, you can request a fee waiver, provided you are earning less than 150% of the federal poverty line, considering your combined household income. If the waiver request is not granted (or you do not qualify), you can also request to pay the filing fee in installments.
Next, print out all the paperwork to file the case with the bankruptcy court. Make certain that you are printing on only one side of the paper (double-sided is not accepted) and that you have as many copies as needed. If you are unsure, you should reach out to the court clerk to check. It is always a good idea to have a complete set for yourself, both for your records and to use for your 341 hearing.
Then you are ready to go to court to file your documents and officially begin your Chapter 7. You usually also have the option to file by mail, but it’s best to go in person to make sure that everything is complete.
Mail documents to your trustee
After you have filed your documents, you will be assigned a trustee to oversee your Chapter 7 bankruptcy case. You’ll need to send specific documents to your Chapter 7 trustee before your scheduled 341 hearing, called the Meeting of Creditors. You should receive a letter from your trustee detailing exactly what they want to review, and the documents must be sent to your trustee at least seven (7) days before your 341 meeting. With a recent divorce, you should anticipate the trustee requesting your divorce decree as well as contact information for your ex-spouse. If you have not received any notice from your trustee two weeks after filing your case, you should reach out to the court clerk and your assigned trustee for further guidance.
If you’re not on good terms with your ex-spouse, note that it is not uncommon for ex-spouses to reach out to the trustee in a bankruptcy case filed after a divorce. That’s why it is extra important to carefully review your divorce decree and fully disclose all requested information in your bankruptcy forms.
Take bankruptcy course 2
After mailing your documents to your Chapter 7 trustee and before your required hearing is the ideal time to complete your second credit counseling course. Remember that you need to take this course with an approved provider. When you have completed the second course you will receive a certificate of completion that you need to file with the court within 60 days of your scheduled 341 meeting to be eligible for discharge at the end of your case. Make sure to file it with the court clerk just like your original bankruptcy documents.
Attend your 341 meeting
When you file Chapter 7 bankruptcy there is one required court appearance. The 341 meeting, also called the Meeting of Creditors will take place before your Chapter 7 trustee. Generally, the meeting is relatively quick (usually between 5 and 15 minutes) and consists of the Chapter 7 trustee asking you questions about the information you provided in your paperwork and documents. They are generally looking to confirm that the information you provided is true and accurate. It’s also possible for your creditors to attend this meeting and ask questions, however, it is unlikely that most or any will do so. Finally, it’s possible that your ex-spouse shows up to the hearing, but they are not required to do so.
Dealing with your car
If you have a car it is very important to make sure to properly list the vehicle(s) in your schedules. In Chapter 7 you’ll have a few different options regarding what to do with your car. If you want to keep the car and you are current on payments (if any) you can indicate that you intend to continue with payments. The creditor will likely request that you sign a reaffirmation agreement. If, however, you are a co-signer on a car that was awarded to your ex-spouse in the divorce, most filers don’t reaffirm the debt to take advantage of the opportunity to walk away from the obligation.
If you believe the car is worth less than what you owe, you can explore the option to redeem the car. If you plan to keep the car it’s also important to properly list the car in your exemptions schedule to protect the equity. If, however, you are behind on the payments without any hope of catching up, you do have the opportunity to surrender the car in your bankruptcy, which will relieve you of the obligation to keep making payments as well as any deficiency in your payments, late charge, etc. If your ex-spouse co-signed for the car loan, they will continue to be obligated to pay the debt.
Bankruptcy exemptions allow you to protect both real and personal property, up to a certain value. Filers are usually able to avoid giving up most, if not all of their property by the proper use of exemptions. In many states, you have the opportunity to choose whether you would like to follow the federal bankruptcy exemptions or state exemptions. Married couples are often able to double the exemptions claimed for personal property. If one of you has already moved out of the marital home that could impact your ability to take the homestead exemption.
Whether you declare bankruptcy before, during or after a divorce truly depends on your circumstances. The decisions that you make about when to file bankruptcy and whether to do so as a couple before divorce are highly personal. It is about what is best for you in your current reality, and there is no right or wrong answer. If it’s possible, however, to work with your soon-to-be ex-spouse and file a Chapter 7 case before moving forward with the divorce, that can greatly simplify the property division and overall divorce proceedings.