Divorce and Bankruptcy Proceedings

Gavel with two wedding rings next to it

COVID 19 has wreaked havoc on businesses across Nevada and resulted in a historic spike in unemployment. A lot of people are struggling. Financial hardship does not occur in a vacuum and can impact all aspects of a person’s life, livelihood, and relationships. This includes divorce proceedings.

When marriages end, money and property are key issues that must be resolved. This includes the division of community property, alimony, and child support. Therefore, there is no way to separate financial struggles from a divorce. This can be further complicated when bankruptcy enters the picture.

Bankruptcy Under Chapters 7 and 13

When a person carries more debt than they can handle, such as small business debt, loans, mortgages, medical debt, or credit card debt, they may look to bankruptcy as an option to stave off debt collectors and create opportunities to settle debts. The most common types of bankruptcy sought by individuals are under Chapter 7 and Chapter 13 of the bankruptcy code.

Chapter 7 bankruptcy takes all of a person’s non-exempt assets and liquidates that property to pay off creditors to the extent possible, in order of priority. Following the liquidation of the property, a court can order the discharge of that person’s debt, which prohibits future attempts by debtors to seek collection. Chapter 13 bankruptcy allows a person to keep their assets, but enter into a payment plan to repay an agreed-to portion of the debt over several years.

During bankruptcy proceedings, courts automatically enter orders that prevent creditors from seeking collection, repossessing property, or enforcing judgments against the debtor.

Bankruptcy and Divorce

In contrast to bankruptcy, divorce settlements and orders cannot discharge a couple’s debt to third parties. So if there is overwhelming separate or community debt, bankruptcy may be the only viable way to discharge the debt. However, we would suggest you proceed with caution.

Bankruptcy is an incredibly complex consideration when it comes to a divorce. You should contact a family law attorney to explore how a potential or existing bankruptcy proceeding may impact the timing of your divorce and your property interests. For example, there may be times when it benefits both spouses to file for bankruptcy jointly before divorcing. However, this is not universally true and also relies on spouses being able to amicably take this approach. In other scenarios, it may benefit one spouse to file separately—before or after the divorce is finalized.

There are also times when bankruptcy and the automatic stay are used as a weapon to delay divorce proceedings or to attempt to negatively impact the other spouse’s property and support rights. Your family lawyer can help you navigate your options to protect your rights. But notably, numerous divorce-related debts cannot be discharged through bankruptcy. This includes alimony obligations, child support, and community property debts. This means that bankruptcy cannot be used as a tool to avoid these obligations.

Family Law Attorneys: Viloria, Oliphant, Oster & Aman L.L.P.

If you are seeking a divorce, contact Viloria, Oliphant, Oster & Aman, L.L.P. Our attorneys are experienced, knowledgeable, and thorough. If your divorce involves high assets and heavy debt, you need an advocate who can resolve your marriage while protecting your financial interests. Let us help you. Call Viloria, Oliphant, Oster & Aman L.L.P. today at (775) 227-2280 to schedule a case consultation or contact our office through our website.

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