Divorce & Bankruptcy in Texas

Couples who go through a divorce oftentimes face serious financial difficulties. In some cases, the parties have become accustomed to living outside their means, resulting in significant debt which must be addressed. While there is nothing in bankruptcy laws that require parties to stay married, getting a divorce and filing for bankruptcy simultaneously can make a difficult situation even more complex.

It is usually prudent to wait until after the divorce is finalized to file for bankruptcy. That is because your financial situation will become much clearer once the division of property and debt has been completed. It is important to realize that even if the decree awards each spouse specific debt, creditors are not deterred from collecting debt from a spouse if the liability was incurred during the marriage and before the divorce. Debts incurred during the marriage will stay on your credit report for several years – even after the divorce and even with the payments are the responsibility of your ex-spouse.

On the other hand, you could file for bankruptcy with your spouse before you decide to file the divorce lawsuit. That way, you will each have a good idea of all your financial obligations when you decide to proceed with the divorce. This will also put you in a better position to negotiate because you will have a clear picture of the debt you will be left with as compared to your assets. This can make your divorce quicker and cheaper because dividing up the debt is less likely to be an issue  (since you have essentially already done it). It’s cheaper to file bankruptcy jointly: one set of filing fees, credit counseling, and attorney’s fees. Of course, this is only a possibility if you and your spouse are cooperating and working well together.

If you decide to file for bankruptcy in the middle of a divorce, this will only delay the proceeding.Generally, the payment of temporary child support will not be affected. Generally, state court judges are not supposed to finalize divorces while a bankruptcy case is pending in Federal court. The division of assets and debts must be approved by the bankruptcy court. Once a bankruptcy is filed, all of your assets will be included in the ‘bankruptcy’ estate. You will also have to list all of your current spouse’s financial information when filling out bankruptcy schedules, even if they do not file a joint case with you. In Texas, there is a presumption that all property acquired during a marriage is community property, meaning you have an interest in everything that was acquired including 401k accounts, real property, vehicles and debts. Once a divorce has been filed, it is probably going to be more difficult to obtain this information, and therefore, better to wait until the family lawsuit is finalized.

One of the most compelling features of filing for bankruptcy is the concept of an automatic stay. Once a voluntary bankruptcy case is filed, an injunction against creditors taking action against you kicks in and they cannot come after you without consent from the court. It is important to keep in mind that automatic stays do not apply to alimony or child support obligations. These kinds of debts are usually not dischargeable in a bankruptcy proceeding. There are, however, options for you if you fall behind on your domestic duties, which can allow you to catch up on past-due payments and avoid jail time or other financial ramifications  (such as a lien on real property).

Before you file anything, whether divorce or bankruptcy, you should speak with a qualified expert in both fields of law. Make sure that the divorce lawyer knows you are considering bankruptcy and the bankruptcy attorney is aware of a possible divorce. They will be able to give you appropriate guidance as far as timing and strategy go for your particular situation.