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When Divorce and Bankruptcy Meet

bankruptcy, Wheaton divorce lawyersSometimes, things simply go bad. It is thankfully rare, but it is not unheard of that someone would have to file for bankruptcy and divorce at the same time. If this happens to you, you may question whether or not to file for both at the same time, or if not, which matter to pursue first. Illinois divorce laws and bankruptcy laws make the answer to that question fairly clear.

Which to File First?

Illinois divorce law and bankruptcy law essentially make filing both petitions at the same time impossible. When you file for bankruptcy, you generally hand over your assets to the care of a bankruptcy trustee for sale or disposition as necessary to pay off your creditors. Once you have commenced a bankruptcy filing, you may not make unilateral decisions about your property. Technically it is no longer yours. Thus, there is nothing for a family court judge to divide.

Though you are not generally able to file both bankruptcy and divorce petitions at the same time, the question of which order you ought to file them in is up to the individual. In most situations, it is recommended to file for bankruptcy before divorce, especially if you get along well with your spouse. The reasons are straightforward in that if you file for divorce first, property division will almost certainly give you new assets, which will then almost certainly be sold to pay your existing debts. Therefor, filing for divorce before a bankruptcy filing can put you at a significant disadvantage.

The Advantages of Bankruptcy First

There are several reasons why filing bankruptcy before divorce is the best course of action. Illinois does allow married couples to claim two sets of exemptions if they file jointly, which means that double the amount of property can be kept out of the hands of the bankruptcy trustee. It is also possible to discharge joint debts in this manner if you have many of them.

An important thing to be aware of in this regard is that filing for Chapter 7 bankruptcy does have income limits. In Illinois, your monthly income must be below the median amount for your household size, or you must be able to pass the means test. If you are unable to do so, it may be in your best interests to file for divorce first, because then you and your former spouse should be able to qualify individually. If you intend to file for Chapter 13, however, you would both be responsible for the repayment plan.

If you do file for bankruptcy before divorce, be advised that you should also have a good enough relationship with your spouse to discuss support issues beforehand. If you have no income, or you will not have access to certain amounts of income, it does not make sense for a judge to require that you pay support based on that income.

A Legal Professional Can Help

If you are in a situation where bankruptcy and divorce are both on your horizon, an experienced divorce attorney can make all the difference. The compassionate Wheaton divorce attorneys at our law firm are well versed in the complexities of Illinois divorce law, and we will put that knowledge to work for you. Contact us today to discuss your options.






Bankruptcy, Maintenance, and Child Support

bankruptcy, Wheaton divorce attorneysIn this day and age, bankruptcy has become more common than it used to be, unfortunately, and as such, more and more people are encountering issues with other obligations that are directly related to bankruptcy. While many believe that a bankruptcy will essentially wipe out all their debt, what they do not know is that certain obligations are specifically exempted from this, and must still be paid regardless of any financial issues.

Spousal Maintenance

While it is not mandatory, a large number of divorce cases in Illinois assign maintenance rights to one spouse or the other. In Illinois, this obligation is specified to last a certain period of time, but if the obligor—the spouse who is paying support—must file for bankruptcy, it is reasonable to look into the possibility of modification. However, the key word is modification. Under the U.S. Internal Revenue Code, maintenance or alimony obligations are not considered dischargeable. In other words, any debts that are of this nature will not be simply erased, as other debts might be in a Chapter 7 bankruptcy.

There are select situations in which you may be able to change or write off a debt of spousal support, but they are rare and involve the assignment of the debt to someone other than the recipient spouse. U.S. tax code holds that maintenance is not dischargeable because it is what is referred to as an obligation of support, but once the debt is assigned, it can no longer be said to support the spouse. Generally, even if you declare bankruptcy, you will still be on the proverbial hook for spousal support in Illinois. However, this does not preclude you from attempting to deal with the issue directly and asking your spouse—or a family court—for a modification due to your struggling finances.

Child Support

Child support obligations are almost never dischargeable. The U.S. Bankruptcy Code states explicitly that “domestic support obligations” are not dischargeable, and child support falls under this category. There is sometimes confusion on this score because if you file Chapter 13, any child support arrearages do come under the aegis of the Chapter 13 plan, but this does not mean these debts are dischargeable. It merely means that under a Chapter 13 repayment plan, the arrearages will be part of that plan.

In most cases, debt relating to the care of your children is less likely to be dischargeable than if it were incurred on your own behalf. A common example is medical care. For example, if your child requires significant medical care, a court is more likely to deem such costs as domestic support obligations, especially if these costs are foreseeable. The state of Illinois holds that child support and all its attendant expenses are due to the child, not to your ex-spouse, and as such, treats attempts to avoid payment quite seriously.

Seek Experienced Legal Assistance

Dealing with bankruptcy is very complex at the best of times, and trying to deal with one while in the midst of a divorce can be too much for any one person to bear. If you are face such a situation, contact an experienced DuPage County family law attorney for assistance. Call 630-871-1002 for a free consultation at any of our three convenient office locations.




Marital Debt and Bankruptcy

bankruptcy, Wheaton divorce attorneysIf you or your spouse ends up in the unenviable position of having to file for both bankruptcy and divorce, it is imperative that you both understand the laws surrounding marital debts and bankruptcy. Many couples make assumptions and then react strongly when their carefully constructed asset division proposal collapses on itself. By educating yourself, you and your spouse can work to avoid such a fate.

Bankruptcy First?

One of the biggest questions regarding asset division, but especially marital debt, is whether to file for bankruptcy before divorce or vice versa. The general rule is that it depends on each spouse’s individual finances, and which type of bankruptcy would be filed. However, in most cases, filing beforehand tends to streamline the divorce process, while filing afterward or concurrently can cause a divorce to drag on. This is especially true if you or your spouse would be filing a Chapter 7 bankruptcy, either jointly or individually. In a Chapter 7, all debts are eliminated or written off, as opposed to in other types of bankruptcy where restructuring is more common.

If one files for Chapter 7 bankruptcy before divorce, a significant amount of debt will likely be off the table, which means it does not have to be taken into account during property division in the divorce. This can cut down on time spent, and correspondingly, on attorney fees. However, some do choose to file for divorce first, either out of a misguided belief that they can then get out of paying spousal support, or because they want to safeguard a specific asset. This can have decidedly mixed outcomes.

Beware of Creditors

Perhaps the most egregious mistake that many couples make is believing that their divorce decree is binding on every actor that may have business with their marriage. The divorce decree does not bind your creditors. If your spouse is assigned responsibility for a debt, but defaults or files for bankruptcy (Chapter 7 or 13), that creditor may attempt to collect from you, regardless of whether or not your divorce decree absolved you of the responsibility to pay. Bankruptcy law requires that once a debtor has filed for bankruptcy, all creditors must cease all communication with that person. It says nothing about ceasing communication with a spouse or other co-signer.

Be advised, however, that barring certain very rare exceptions, bankruptcy law does not allow you to shake some creditors, if you are in the position to be on the proverbial hook: your spouse and/or children. 11 USC § 523 states specifically that spousal maintenance and child support are explicitly not dischargeable in bankruptcy unless it is absolutely impossible for the debtor to both pay and support themselves in a semi-decent style, and this is extremely difficult to prove. While bankruptcy will wipe out some of your marital debt, it will not clear the slate completely.

Need Help Understanding Bankruptcy & Divorce?

If you have been unfortunate enough to have to confront both bankruptcy and divorce at the same time, you need a knowledgeable attorney who will fight for you. Our passionate DuPage County divorce attorneys can help advise you as to the best path for you, your family and your finances. Contact our offices today to set up a free initial consultation.