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Divorce and Bankruptcy

One should consider careful bankruptcy planning prior to or during the divorce proceeding. Oftentimes a joint bankruptcy case may reduce the financial demands on a troubled marriage and facilitate settlement. Discharge of debts and the avoidance of liens may change the size of the estate or reduce the debts to be divided. The fact of avoidance of liens on exempt property may increase assets that might otherwise be lost.

A husband and wife can file a joint case under various bankruptcy chapters, including Chapter 7 or 13. Both names are reflected on the same petition and only one filing fee is due. Under Bankruptcy Code, only spouses are allowed to file a joint petition. Even though the petition is joint, two separate cases exist, and court will make determination whether the cases should be consolidated. Further, the court can further appoint different trustee for each debtor. But even if the same trustee is appointed for both estates, those estates must be accounted for separately when one spouse has more property than the other or the interests of creditors are different.

In relation to family law matters, it is important to keep in mind that certain debts are nondischargeable. For example, obligations resulting from separation agreement or dissolution of marriage judgment: alimony or support of present or former spouse, or child, and obligations that are in lieu of such orders; and property division obligations resulting from separation agreement, dissolution of marriage judgment or court order, or certain governmental orders, unless the debtor’s income makes it impossible to pay for debtor’s and his dependents’ support.

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