Divorce and Bankruptcy: Navigating the Intersection

Timing Matters: Filing Before, During, or After Divorce

When assisting clients with divorce cases, we prioritize property settlement discussions right after issues concerning minor children need to be resolved. Among critical considerations is the timing of bankruptcy filings. Should it occur before, during, or after the divorce process? Our collaborative approach involves consulting with bankruptcy specialists to make informed decisions.

Debts Not Discharged in Bankruptcy

While bankruptcy aims to provide a fresh start, certain debts remain unaffected. These include:

  1. Income Tax Liabilities:
    • Tax returns due within 3 years before filing.
    • Unfiled tax returns.
  2. Support Obligations:
    • Child support.
    • Spousal support (alimony).
  3. Specific Debts:
    • Injuries resulting from intoxicated driving.
    • Fraudulent debts.
    • Debts arising from intentional harm.
    • Most student loans.
    • Fines and penalties.
    • Criminal restitution.

Chapter 7 Bankruptcy

  • Liquidation: Debtors surrender non-exempt assets to the trustee.
  • Means Test: Household income compared to preset median levels.
  • Advantages:
    • Quick process.
    • Elimination of most debts.
  • Disadvantages:
    • Asset liquidation.
    • Some debts survive discharge.

Chapter 13 Bankruptcy

  • Reorganization: Available to individuals with regular income.
  • Debt Restructuring: Plan lasting 3 to 5 years.
  • Advantages:
    • Catch up on secured debt (e.g., mortgage, auto).
    • Address delinquent support and tax payments.
    • Automatic stay protection.
  • Disadvantage:
    • Longer duration (up to 5 years).
    • Higher administrative costs.

Expert Guidance

Our Michigan family law attorneys strongly recommend consulting an experienced bankruptcy lawyer. Strategic planning ensures informed decisions for our divorce clients. Remember, hiring an attorney early can lead to better outcomes during this complex intersection of divorce and bankruptcy.