Bankruptcy and Divorce
New Jersey bankruptcy attorney advises on how divorce can affect debt relief options
The interplay between bankruptcy and divorce is complicated. Filing for bankruptcy before or during divorce can delay reaching a resolution of the divorce, but it can also make property division easier in the long run. In some cases, waiting until after the divorce to file for bankruptcy might be the better choice. At the Law Offices of James C. Zimmermann, our attorneys help New Jersey residents navigate the interaction between bankruptcy and divorce so they can secure the best possible resolution.
Should you file bankruptcy before or after divorce?
Whether you should file for bankruptcy before or after you file for divorce depends on a few factors, including:
- Which type of bankruptcy proceeding you file
- Whether you want to eliminate marital debts
- Whether you and your spouse want to file jointly to save money or double the amount of the federal exemption
We will discuss all of these factors with you and help you reach the best decision as to timing.
Types of bankruptcy and their impact on divorce
Property division is a necessary part of any divorce. If your bankruptcy is pending when you or your spouse files for divorce, or file for bankruptcy while your divorce is pending, the automatic stay that goes into effect when the bankruptcy is filed will stop or delay the property division. If you and your spouse seek bankruptcy protection jointly before you file for divorce, you can double the amount of your federal homestead exemption, making keeping your home safe from creditors easier. In a Chapter 7 bankruptcy, the trustee must sell any property you own that is not exempt from bankruptcy. Only after the trustee determines which property may be liquidated to pay creditors may the property division proceed. In a Chapter 13 bankruptcy, the value of your non-exempt property will determine how much you must pay your creditors, so you will need the bankruptcy court’s permission to proceed with the property division.
How bankruptcy affects marital debt
The ultimate goal of a bankruptcy proceeding is to discharge – that is, eliminate – all or most of your debts, potentially including even IRS tax debt (there are federal exceptions to the discharge that might apply in some cases). Therefore, a successful pre-divorce bankruptcy will likely reduce the amount of marital debt that the divorce court will need to divide.
Bankruptcy and property division during divorce
In addition to delaying the division of marital property in a divorce, bankruptcy affects how the property is divided in the divorce decree. For one thing, the trustee or bankruptcy court must decide which assets belong in the bankruptcy estate. In a Chapter 7 bankruptcy, the trustee must sell non-exempt assets, which might include marital assets as well as the spouses’ personal property, affecting what can be distributed among the divorcing spouses.
Bankruptcy’s effect on child support and alimony
Unlike other efforts by creditors to recover debts, the automatic stay does not affect either child support or alimony. Therefore, filing for bankruptcy won’t stop or even delay them from being awarded.
Speak with a knowledgeable North Jersey bankruptcy attorney
At the Law Offices of James C. Zimmermann, we handle a full range of bankruptcy-related concerns for New Jersey clients. To schedule a free initial consultation, please call 973-764-1633 or contact us online. Our offices are in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley.
