Your Divorce Decree and Bankruptcy
Divorced debtors considering bankruptcy are often concerned about agreements they made in their divorce decree. The good news is that if the divorced debtor’s financial situation has changed in a way which warrants bankruptcy, they may be able to discharge certain debts. Those debts they are unable to discharge may be repaid over time if they are filing Chapter 12 bankruptcy.
Let’s take a look at a few facts:
- When the divorced debtor files bankruptcy, the automatic stay will stop all creditor activity, such as attempts to collect from the debtor. However, if the debtor owes child support or domestic support, those debts will be given priority over other debts, including taxes and cannot be discharged in bankruptcy. If the debtor is behind on support payments they may be able to repay the delinquent portion over time in Chapter 13 bankruptcy .
- If the debtor wants to lower child support payments, they will need to go back to family/divorce court to request a modification. The bankruptcy court does not have the power to reduce child support payments.
- Bankruptcy’s automatic stay will not prevent a lawsuit to pursue or modify child support, nor will it stop a lawsuit to establish paternity.
- Other domestic support such as alimony cannot be reduced or discharged in bankruptcy. If the divorced debtor wants to make changes to an alimony agreement, they will need to return to the family/divorce court.
- If a divorced debtor agreed to pay other debts such as a credit card in their divorce decree, the bankruptcy may discharge the debtor’s obligation. However, if the ex-spouse properly challenges the discharge of the debt, the bankruptcy court may decide to make it non-dischargeable.
- Speak with a Dallas bankruptcy attorney if you have complex divorce issues which may impact your bankruptcy case.