Consumer Bankruptcy and Divorce Law:

What You Need to Know

When divorce and bankruptcy collide, the legal and financial issues can become especially complicated. Divorce is governed by state law, while bankruptcy is a federal process under the Bankruptcy Code. These separate systems often intersect—divorce can lead to bankruptcy, and bankruptcy can impact divorce outcomes. Below is a plain-language guide covering the key issues that arise at the intersection of consumer bankruptcy and divorce law.

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Domestic Support Obligations (DSOs)

• What counts? Alimony, child support, maintenance, or similar obligations owed to a spouse, former spouse, or child.

• Who can collect? The recipient or even a government agency (if benefits or collection assistance are involved).

• How defined? DSOs must arise from a court order, separation agreement, or state law determination.

• Why important? Whether an obligation is support or a property settlement matters because support obligations can’t be discharged in bankruptcy.

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DSOs as Income and Expenses

• If you receive support, it counts as income on bankruptcy schedules and the means test.

• If you pay support, it counts as an expense and reduces disposable income.

• This impacts both:

  • Chapter 7: whether you qualify to file (means test).

  • Chapter 13: how long your plan lasts and how much you must pay.

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The Automatic Stay

When bankruptcy is filed, most collection actions stop. But there are big exceptions for family law:

• Divorce cases can continue for custody, visitation, paternity, domestic violence, or support establishment/modification.

• Collecting support from non-estate property (like wages) is allowed.

• Tax refund interception, license suspension, and credit reporting for unpaid child support can continue.

Bottom line: Bankruptcy won’t shield someone from paying or modifying support obligations.

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Property Rights

• Bankruptcy estate: includes all property the debtor owns on filing, plus community property (in states that recognize it).

• Divorce timing matters:

  • If divorce property division is final before filing, it usually stands.

  • If property is still undivided, it may fall into the bankruptcy estate for creditors.

• Community property rules in states like CA, TX, and AZ can make one spouse’s filing affect both spouses’ assets.

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Avoidance Actions

• Trustees can unwind transfers made before bankruptcy if they look like fraudulent attempts to shield assets.

• This often comes up when property was transferred to an ex-spouse in a divorce settlement.

• Transfers ordered by a court in a contested divorce are usually safe. Voluntary settlements get closer scrutiny.

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Section 522 Judicial Lien Avoidance

• Bankruptcy allows debtors to avoid judicial liens that impair exemptions (like homestead).

• Exception: DSOs. Liens securing support obligations cannot be avoided.

• Property settlement liens may be avoidable, but outcomes vary by court and facts.

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Priority of DSOs

• DSOs are first priority debts in bankruptcy.

• In Chapter 7, they must be paid before most other creditors.

• In Chapter 13, the plan must provide for full payment of DSOs. The debtor also must stay current on new support payments during the case.

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Dischargeability

• Never dischargeable: Domestic support obligations (alimony, child support).

• Chapter 7: Property settlement debts (like one spouse agreeing to pay joint credit cards) are also not dischargeable.

• Chapter 13: Property settlement debts can be discharged if the debtor completes the repayment plan.

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Key Takeaways

1. Support obligations survive both Chapter 7 and Chapter 13 bankruptcies.

2. Property settlement obligations may survive Chapter 7 but can be discharged in Chapter 13.

3. Divorce timing matters—if property division is final, bankruptcy generally won’t change it.

4. Trustees can challenge transfers in divorce if they appear unfair or fraudulent.

5. Support has top priority—in both payment order and legal protection.

 

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✅ Practical Tip: If you’re facing both divorce and bankruptcy, careful planning is critical. The order of filing, how property is divided, and how obligations are labeled (support vs. settlement) can dramatically affect your financial outcome.

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Bankruptcy & Divorce:

Frequently Asked Questions

Divorce and bankruptcy often go hand-in-hand because the same financial stress that ends a marriage can also lead to unmanageable debt. Here are answers to the most common questions we hear from clients navigating both processes.

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1. Should I File Bankruptcy Before or After Divorce?

It depends on your goals:

• Before Divorce: Filing together (joint bankruptcy) can wipe out marital debts and save on court filing fees and attorney’s fees. This can make dividing property in divorce much simpler.

• After Divorce: Sometimes it makes sense to finalize the divorce first, especially if one spouse wants to keep certain property or file individually.

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2. Can Bankruptcy Eliminate Property Settlement Obligations?

• Chapter 7: Cannot eliminate property settlement obligations from a divorce (like equalization payments).

• Chapter 13: May allow you to discharge some property settlement debts if you complete the repayment plan — but domestic support obligations (alimony/child support) cannot be discharged in any chapter.

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3. How Does Bankruptcy Affect Child Support or Alimony?

• Bankruptcy does NOT wipe out support obligations.
  Child support and alimony are priority debts that must be paid in full. Chapter 13 plans must be current on support obligations throughout the case.

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4. What Happens to Joint Debts in Divorce?

Divorce decrees divide debts between spouses, but creditors are not bound by your divorce decree — if your ex-spouse fails to pay a joint debt, creditors can still come after you.
Bankruptcy can eliminate your liability for joint debts, protecting you from your ex-spouse’s missed payments.

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5. How Does Bankruptcy Handle Marital Property?

If you file before divorce:

• Chapter 7: The bankruptcy trustee can sell non-exempt marital property to pay creditors.

• Chapter 13: Lets you keep your property and repay debts over time.

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6. What if My Ex-Spouse Files Bankruptcy?

If your ex discharges joint debts in bankruptcy, the creditor may seek payment from you. In some cases, you may be able to reopen your divorce case to enforce the decree or seek contribution.

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7. Can Bankruptcy Stop a Divorce Court Case?

Bankruptcy triggers the automatic stay, which pauses most collection actions — but divorce proceedings about custody, support, and marital status can continue. Property division may be delayed until the bankruptcy is resolved.

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8. How Do Chapter 13 Plans Work During Divorce?

If you are in an active Chapter 13 when you divorce, you may:

• Convert to Chapter 7

• Dismiss and refile separately

• Modify your Chapter 13 plan to reflect your new income and expenses

 

Bankruptcy & Divorce: Timing Comparison Chart

👉 If you’re dealing with divorce and bankruptcy at the same time, the law can get complex fast. Ginsburg Law Group can help you protect your rights, your property, and your future. Contact us today for a consultation.

This is not legal advice.  Always consult an attorney.