In our town of Ottawa, Illinois, one of the most common issues we run across is people with financial concerns before, during, and after divorce. If financial reasons are one of the more common causes of divorce, then this comes as no surprise. Our office limits our practice to Chapter 7 bankruptcies (i.e., liquidations), and this discussion is limited to bankruptcy and divorce in the context of a Chapter 7 bankruptcy.
In some cases, it is not always clear whether a couple should file a bankruptcy petition or get divorced first. A lot depends on the assets involved or the lack thereof. When a couple is married, either one may file for bankruptcy individually or the couple may do it jointly. Filing jointly could save a couple some money as the joint debtors would pay the filing fee and the attorney only once. Filing jointly, however, may not be in both spouse’s individual best interests. For example, one spouse may want to take advantage of discharging a property settlement obligation stemming from the divorce that is available under a Chapter 13 reorganization but not a Chapter 7 liquidation. For this reason, it is highly advisable that both spouses obtain individual counsel.
It can be complex when both bankruptcy and divorce is at issue, but one thing is clear: domestic support obligations (e.g., maintenance, child support, or in some circumstances, related attorneys’ fees) are not dischargeable in bankruptcy. Property settlements from a divorce are not dischargeable in a Chapter 7 bankruptcy, but that is not true in other bankruptcy chapters. Other claims stemming from the divorce are at the same level of priority as other unsecured creditors in a bankruptcy.
Much of this information was gleaned from: Leibowitz, David P., Family Law (Illinois): Property and Financial Aspects of Dissolution Actions 2011 Edition & 2013 Supplement, Chapter 5 – Bankruptcy, Illinois Institute for Continuing Legal Education. We are a debt relief agency, and we file bankruptcy under the bankruptcy code.