Whether you're the debtor considering bankruptcy or an ex-spouse of a debtor who is considering bankruptcy, any divorce settlement agreement made right before a bankruptcy filing could be impacted by the rules governing bankruptcy.
Bankruptcy and Divorce Settlements
Here are few things you should know:
- If an ex-spouse decides to file bankruptcy after a divorce settlement, their finances will be taken over by the bankruptcy trustee. The bankruptcy trustee will be responsible for managing the debtor's assets and distributing payments to creditors. An ex-spouse with a divorce settlement will be a claimant or creditor in the bankruptcy.
- If the debtor filing bankruptcy has a home and the ex-spouse is a joint owner then the trustee will not distribute the non-filing ex-spouse's half of the property to the creditors in the bankruptcy case. However, if the ex-spouse who is not filing bankruptcy did not have an interest in the house, it may be difficult for them to extract any payments from a sell of the home.
- If an ex-spouse filing bankruptcy hides assets in order to avoid paying a divorce settlement or other debts, they can be fined and imprisoned for bankruptcy fraud if and when those assets are discovered. It is rare that a debtor can hide assets successfully during bankruptcy.
- If a debtor signs a divorce settlement with a non-filing ex-spouse six months or less before filing bankruptcy, the debt settlement may be reduced by the bankruptcy trustee. However, if the debtor and the non-filing ex-spouse reach a divorce settlement six months or more before the bankruptcy filing, it is unlikely that the divorce settlement will be reduced during bankruptcy.
Have any More Questions About Divorce and Bankruptcy?
If you have any questions regarding divorce and bankruptcy, we are always there to answer your questions, feel free to call us or contact us here