During the divorce::
When a bankruptcy petition is filed, an “automatic stay” is set up to prevent creditors from carrying out collections, foreclosures, evictions and the like. The assets will be frozen so that the bankruptcy court can determine which assets belong to the petitioner and which debts are owed. For example, suppose a spouse files for bankruptcy while a divorce is pending (or a divorce is filed while a bankruptcy petition is pending). In this case, because of the automatic residency, the Probate and Family Court cannot proceed with the division of property in a divorce, essentially halting the divorce process until the bankruptcy case is completed.
After the divorce::
When a party files for bankruptcy after a divorce and tries to meet the financial obligations contained in a divorce decree, nothing such as a “domestic assistance obligation” can be fulfilled. Whether an obligation in a divorce decree is an “obligation to support the domestic” is determined by the Federal Bankruptcy Act and not by the Probate and Family Court. Under 11 USC Section 101 (14A), a domestic maintenance obligation is a debt owed (1) to a former spouse or child (2) in the form of alimony, alimony, or alimony, regardless of how the debt is called, (3) by application of a separation agreement, divorce decree or court order and (4) not assigned to a non-governmental organization. Courts use a variety of factors to assess whether a debt is a domestic assistance obligation and not just how the obligation is described in the judgment or agreement. Maintenance obligations (and arrears resulting from non-payment of such obligations) clearly cannot be relieved in the event of insolvency, but obligations to divide up assets and to pay loans and other debts were not considered to be relieved as domestic maintenance obligations.
Regardless of whether you want to file for bankruptcy during or after your divorce, or whether your current or former spouse files for bankruptcy, get advice from both an experienced divorce lawyer and an experienced bankruptcy attorney. Without proper instructions, you could be holding the bag in your hand.
Until next time,
Robin
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