Divorce can already be stressful and now you or your spouse is considering filing for bankruptcy. Before filing, you need to know how bankruptcy can affect your divorce.
If a spouse files for bankruptcy during a divorce, the divorce is automatically stayed until the bankruptcy is resolved. This automatic stay is necessary as the bankruptcy will be affecting the assets of the marital estate.
The Family Court has the exclusive jurisdiction to divide the marital estate in a manner that is just and right. Likewise, the Bankruptcy Court decides which property will be sold to pay creditors and which debt is discharged. The Family Court cannot divide a marital estate without knowing entirely what constitutes the estate.
Q: How is debt divided in a divorce?
Texas is a community property state. Any property acquired during the marriage is part of the marital estate and subject to the just and right division. This concept may also be applied towards debt. Although, there is a saying that “there is no such thing as community debt,” in practice, the debt is assigned as an obligation to a party similarly to property awarded. All community property and liabilities obtained during the marriage will be accounted for in divided a marital estate.
Q: Am I responsible for my spouse’s debt?
Typically, no. If the liability is solely in your spouse’s name, then there is no contractual obligation between you and the creditor. However, there is a practical caveat as seen in the next question below.
Q: Will my property be affected if my spouse files for bankruptcy?
Most likely. Depending on the type of bankruptcy filed, the court will appoint a trustee to sell assets to pay creditors. The property the trustee may sell typically is the filing spouse’s solely controlled community property and the filing spouse’s separate property. In Texas, separate property is (1) anything owned prior to marriage, (2) any inheritance received, or (3) any gifts received. It should be noted that the trustee may sell co-owned property if there are no alternatives. Although a community asset may not be in your name, you do have an interest in that property.
Q: What happens to Child Support or Spousal Maintenance (Alimony)?
Child Support and Spousal Maintenance (Texas’ version of Alimony) are not dischargeable in bankruptcy.
Q: How long does bankruptcy take?
Depending on the type of bankruptcy filed, it could take months or years. You should talk to your spouse about bankruptcy before either one files.
Our team is dedicated to help you in your time of need. If you would like more information or to speak with an attorney, feel free to give us a call at (832) 781-0320.