We previously covered issues that come up when your ex refuses to pay the bills as ordered by the court. But, what happens when that same ex files bankruptcy?
Let me first preface this discussion by saying that my practice does not focus on bankruptcy work. In fact, I try to avoid dealing with bankruptcy issues as much as possible. Unfortunately,
with having a practice that is made of 75-80%, the issue comes up with some regularity. An older attorney told me once years ago that most people filing for divorce probably actually need to file bankruptcy. His point was that often financial stressors lead to the deterioration of the marriage relationship. Many times, I have certainly found that to be the case. Similarly, most people's financial situation does not improve after a divorce, which leads many people to file for bankruptcy post-divorce.
There are two types of bankruptcy that people will usually deal with on a personal basis; Chapter 7 and Chapter 13. A Chapter 7 is a liquidation bankruptcy where, if all goes well, at the end the person's debts will be wiped out completely (...more or less. There are some exceptions, but for purposes of this discussion, this explanation suffices.) Under the revisions to the bankruptcy laws that went into effect in 2005, any debt that is ordered to be paid as a result of a marital settlement agreement or a divorce decree is supposed to be non-dischargeable. That means the bankruptcy court as a general rule is not supposed to discharge the debt. The catch is that often the non-bankrupting spouse never appears in court or otherwise objects to the discharge. In order to ensure you are protected from a defaulting spouse in a post-divorce bankruptcy, you must file an objection with the bankruptcy court.
The other bankruptcy option is the Chapter 13. This is a repayment plan whereby the debtor agrees to pay a certain portion of the outstanding debts back in exchange the debtor gets a discharge of the remaining balance at the end of the bankruptcy. The Chapter 13 discharge will even discharge debts from a divorce decree or marital settlement agreement. This is a major loophole in the law that remains open to this day.
Now if the other party files bankruptcy and gets a discharge, all hope is not lost. The Kentucky Supreme Court has ruled that a divorce court can use its contempt powers to enforce an obligation from a divorce decree. In that case, Kentucky's high court stated that a Kentucky state court has the authority to determine whether a particular debt assigned in a divorce is covered by the discharge received in federal bankruptcy court. While one may or may not disagree with the Court, it is the law of the land at the moment and another arrow in the quiver of the innocent ex-spouse. Regardless, this can be some tricky waters to navigate. If you have more questions, contact us at the Alford Law Office.
Labels: bankruptcy, debt, divorce, divorce decree, divorce lawyer, divorce petition, ex husband, ex wife, kentucky, marital property