“Divorce and bankruptcy mix, but don’t expect a delicious blend,” I titled one of these Bankruptcy in Indiana articles almost four years ago. I was reminded how true that statement is while reading a true story Texas case in Consumer Bankruptcy News.
After more than 25 years practicing Indiana bankruptcy law, you’d think I would have seen every possible divorce/bankruptcy scenario there is. In reality, though, the law keeps evolving as new situations arise. In fact, those changes are a favorite topic for discussion between me and my colleagues in the five Zuckerberg bankruptcy law offices as we follow different cases from around the country.
Whenever both bankruptcy and divorce are involved, treating both sides – and the creditors – fairly becomes a much more complex task. Remember, as a debt consolidation lawyer offering bankruptcy services in Indiana, I am not directly involved with divorce or child custody legal issues. But, as Bankruptcy in Indiana readers will soon see, those two separate legal areas have a way of spilling over one onto the other.
Here’s what transpired in Texas:
Mr. & Mrs. F. divorced, and the wife was awarded full custody of the children.
A few years later, Mr. F. filed bankruptcy. In bankruptcy Chapter 7, also known as liquidation bankruptcy, whatever assets the debtor owns, over and above what is exempt under the new bankruptcy laws of Indiana, are liquidated to pay creditors.
Among the debts he listed, Mr. F. had all the attorney fees from the divorce and the child custody hearings that he was supposed to pay. Mr. F. asked the bankruptcy court to “forgive” or discharge those fees as part of the bankruptcy procedure.
The court ruled against him. Unlike other unsecured debts such as credit card debt or medical debt, the court said attorney fees for child custody were not dischargeable in bankruptcy.
Lessons for clients thinking of filing personal bankruptcy in Indiana (or small business bankruptcy in Indiana) close to or in conjunction with a divorce:
Your divorce lawyer and your bankruptcy lawyer need to coordinate their efforts on your behalf.
- Child support and alimony are two kinds of debt that cannot be forgiven in bankruptcy.
So, in retrospect, was filing individual bankruptcy still of benefit to Mr. F.? Yes, because he needed some relief from creditors in order to be able to devote the money he was earning to keeping up with the child support and paying down those attorney fees. Having other debts discharged through bankruptcy allowed him a chance at a fresh financial start.
Categorised in: Bankruptcy Indiana
This post was written by Mark Zuckerberg