Financial stress is often cited as a primary contributing factor to marital stress and dissolution. As the current global recession continues to take a toll on families and individuals, couples seeking a divorce with either or both persons in deep financial debt must strongly consider how bankruptcy will affect the divorce.
Filing for bankruptcy can give an individual a fresh financial start and relieve the individual from creditors collecting debts. The ending of all efforts to collect any debts by collectors is known as an automatic stay. However, before former president Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 bankruptcy was often used as a tool to permanently evade, or discharge, family obligations set by agreements or court orders after a divorce. At present, any domestic support obligations are now a first priority claim and are ineligible for discharge including child support and alimony payments.
In most cases an individual or couple will be advised by an attorney to file for bankruptcy before starting legal divorce proceedings. Filing bankruptcy before divorce proceedings simplifies the clearing out of debt, the negotiating of how remaining debt should be divided, and provides protection from an independent bankruptcy filing by you partner saving you from the future responsibility of having to pay your former partner’s debt. Filing a joint bankruptcy claim is also more cost effective than filing two separate claims. To further prevent a creditor from collecting debt from you instead of your former spouse, a wise precaution would be to have a “hold harmless” or “indemnity” clause stated in the divorce decree that will require your former spouse to pay certain debts or repay you if a creditor makes you pay debt.
If you are dealing with a divorce or family law situation, we strongly advise you to speak with one of our Atlanta family law attorneys about structuring a settlement that works for you and your family. We look forward to working with you.
