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There are many different scenarios in which a bankruptcy will affect the equitable distribution of a divorce, and many corresponding outcomes. Much depends on:
Divorce and Bankruptcy Often Go Together
Unfortunately, getting a divorce often brings a couple to near financial ruin. A bankruptcy for some couples may precede the divorce. In other cases, one or both parties file for bankruptcy after their divorce, when they find that they cannot handle their bills alone.
After-Divorce Bankruptcies
When a bankruptcy is being initiated after a divorce by one ex-spouse in an attempt to avoid obligations that are part of a property settlement, the other spouse will be well served by having his or her own attorney on hand for counsel and potential litigation. In certain cases, some of those obligations can be relieved by bankruptcy.
It's important to note, however, that child support and alimony (spousal support) cannot be discharged in a bankruptcy. Also, a law was implemented in 2005 to prevent bankruptcy abuse — by spouses who are divorcing, among others. With this law (the Bankruptcy Abuse Prevention and Consumer Protection Act), an individual who wants to file for bankruptcy must pass a "means test" to certify that he or she is not abusing the protection that a bankruptcy provides.
The means test is based on an individual's income, and the income standard varies from state to state based on the median income in each jurisdiction.
Bankruptcy Law Is Federal Law
Divorcing couples also frequently ask whether each state has its own bankruptcy laws, as they do for divorce. Bankruptcy laws are federal laws, and thus the same across the 50 states. However, the types and amount of property/assets that can be considered exempt from bankruptcy proceedings vary among the states.
Consult a Divorce Lawyer to Learn More
If you're concerned about your finances, divorce and bankruptcy, contact us to speak to an experienced divorce lawyer to discuss your circumstances.