Dealing with Bankruptcy and Divorce

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The Unfortunate One Two Punch of Bankruptcy and Divorce

It’s not uncommon for people facing divorce to remove the rose colored glasses and see their former dream girl or prince charming for who they really are. Unfortunately for some, this clarity lends itself to the discovery of a caliber of character somewhere between a used car salesman and the devil incarnate.  While most feel a sense of relief when their final judgment is entered, these disenchanted few experience debilitating panic expecting  their former soul mate to do whatever possible to welsh on their obligations. And, it’s no wonder. Once upon a time, these grass widows biggest fear would have been their ex hightailing it to the Maldives with the babysitter and the family nest egg. Today’s economic climate, however, has introduced them to a new keyword (and an increased dosage of Xanax).

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What Qualifies as a Bankruptcy Discharge?

Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Prevention Act in 2005, divorcees were able to discharge many debts associated with property settlements. This was due to the existence of a distinction between the former and debts relating to support obligations, which are never dischargeable. The Act changed this by expanding the definition of nondischargeable debts and placing them under an umbrella of nondischargeable domestic support obligations. These obligations include health, life and disability insurance, retirement benefits, obligations to pay tax liabilities and obligations to make mortgage payments. This means that the big bad bankruptcy ghost you heard horror stories about doesn’t have the teeth that it once did. Cue the collective sigh of relief.

Of course, there are still certain obstacles one can face. For example, this only applies to bankruptcy sought under Chapter 7; meaning that property settlement debts are still dischargable under Chapter 13. To ensure your assets are protected, it is important that you are educated by a family law attorney you can trust.