Bankruptcy or Divorce and Does My Spouse Have to File


Phoenix Bankruptcy or Divorce

Phoenix Bankruptcy and Divorce - Which Comes First

Bankruptcy and divorce go together.  Debt is a common, major cause of marital problems.  If you have decided to seek a divorce, you can get help from a family lawyer.  If a major source of your marital problems seems to be debt, maybe bankruptcy could be the answer.  Even if both of you do not want to file, even if only one spouse files, you can get rid of all of your community debt, and maybe repair the relationship.

How Will Bankruptcy Affect my Spouse

Arizona is a community property state.  This is not common in the United States.  Therefore, the rules from other states may not apply the same way in Arizona.

Community property means that property and debt acquired during marriage is generally owned and owed by both spouses.  Either spouse can be made to pay for debt acquired during marriage.  This is usually the case regardless if both spouses even knew about the debt.  It also does not usually matter whose name is on the account, title, or deed.  The state laws of Arizona apply everywhere in the state.  Therefore, the community property laws of Arizona apply just as much in Phoenix as they do in Mesa or Gilbert.  So, even if one spouse incurs a lot of debt, the other spouse has to pay, even if he/she did not know.

Conversely, one spouse can shield the other from debt in bankruptcy.  If one spouse files bankruptcy, the other spouse does not need to file.  One spouse can discharge all of the community debt without the other filing.  No creditor can take any community assets to satisfy the discharged debt.  This means that even the wages of one spouse cannot be garnished, as long as the other spouse files bankruptcy.

What is the Benefit of Filing a Joint Bankruptcy when Married

Being married in Arizona does not mean you both have to file bankruptcy.  You do not have to file a joint bankruptcy, even if you are married.  Many times, it is better for only one spouse to file.  This may help one spouse maintain a good credit rating, and this may allow future financing that will benefit both parties.

Filing Bankruptcy before Divorce

Filing bankruptcy can get rid of community debt.  Even if only one spouse files, the community debt can be discharged.  Filing bankruptcy before divorce might change a lot of things.  Discharging community debt might also give a new perspective as to what is possible, or make the divorce easier.

Filing Divorce before Bankruptcy

Filing divorce before bankruptcy can be much more complicating.  Divorces can take a very long time, and filing a bankruptcy during a divorce can delay a divorce decree.

The Automatic Stay and Filing Bankruptcy During Divorce

Immediately upon filing a bankruptcy, there is a court order called an automatic stay.  The automatic stay prohibits any creditors from trying to collect any debts.  In addition, it will stop any pending lawsuits.  This includes a divorce.  Therefore, if you file a bankruptcy midway through your divorce, the divorce might have to stop to wait for the bankruptcy to be over.

There are ways to continue the divorce, even if bankruptcy has been filed in the middle of the divorce.  A party could go to the bankruptcy court and ask for relief from stay.  This just means the party doesn't want the automatic stay to apply to them.  In this case, if granted by the bankruptcy court, the divorce could continue.  Additionally, if nobody brings it to the divorce courts attention that a bankruptcy has been filed, the divorce might just continue without knowing.  Bankruptcy court and divorce court do not usually talk.

Debts in the Divorce Decree and Bankruptcy

Once a divorce decree is entered, debts are usually split between the parties.  The husband is ordered to pay some of the debt.  The wife is ordered to pay other debt.  This order does not affect the creditor.  The creditor can still collect from either party.  Therefore, there are lots and lots of times when the spouse ordered to pay does not.  In these cases, the creditor can sue the spouse that was not ordered to pay.  Even though the court told your ex to pay, you are now getting sued.  Now what?

In a lot of cases, the money issues continue long after the divorce.  If a spouse is having trouble making child support payments, odds are that the debt payments will not be made either.  If the court is not able to enforce child support payments, going back to divorce court to enforce the order to pay debt is not likely to do much good, either.  You have every right to enforce the order to pay debt in the divorce decree.  However, if there is no way to pay, it may be a useless effort.  In these cases, there are big problems.

Even though the other spouse was ordered to pay a debt in a divorce decree, the creditor can still garnish the spouse that was not supposed to pay.  Telling the creditor, or even the judge, that you are not supposed to pay is not going to be effective.  The creditor has a right to collect from either spouse.  Once a GARNISHMENT has been executed, there is little else to do.  Bankruptcy might be your only option.

Does My Spouse Have to File Bankruptcy With Me - Do Both Spouses Have to File Bankruptcy

In a community property state like Arizona, a community discharge is a real thing.  When filing bankruptcy, all of the community assets must be listed in the bankruptcy petition.  Listing all of the community debt allows the creditors to have access and knowledge of all the community property.  Because all of the community property is listed, all of the community debt is discharged.  This is true if only one spouse files, or both file.

What if Only One Spouse Files

When married couples file for bankruptcy, there are three types of debt.  There is community debt that was incurred during marriage.  There is the husbands separate debt that existed before marriage.  There is the wife's separate debt that existed before marriage.  Even if only one spouse files bankruptcy, the community debt will be discharged.  Additionally, the separate debt of the filing spouse will be discharge.  The creditor could still try to take the separate property of the non-filing spouse, but most people do not have sole and separate property.  Even if a creditor attempted to do this, proving separate property is difficult.  The creditor would have to prove the property was not intended as community property.  This is impossible.  Because of this, creditors do not normally chase separate property after a bankruptcy.  For example, if only one spouse files, the creditor cannot take the separate property of the filing spouse (likely nothing) or any community property.  The community property would be all of the wages and earnings going forward as long as you are married.  Therefore, one spouse filing can stop garnishment for the whole family.

What Happens in Divorce After a Community Discharge

A community discharge protects the filing spouse, as well as the community property.  However, upon divorce, the non-filing spouse will start to generate income and assets that are not part of the community.  If any of the creditors are still around, and know about the divorce, they could try to collect from the non-filing spouse after divorce.  This is just not likely.  This would require the creditor to know about the divorce, as well as understand community property law.  Creditors have many debtors to chase.  Chasing separate property after bankruptcy and divorce is a remote risk.