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Issues arise when a client comes to you expressing concern that their ex-spouse, or soon to be ex-spouse, is filing for bankruptcy relief. With the caveat that each case must be examined under the relevant state codes and procedures, what follows is a general guideline to understanding the issues, and pro-actively representing, your client’s interests:
Inventory & Categorize Joint-Debts
What are the debts your client owes jointly with the spouse? Are their debts your client incurred for the spouse?
Recognize that a single individual filing for relief under Chapter 7 of the bankruptcy code will not stop creditors from enforcing judgment against the non-filing spouse if he/she is a co-debtor on the obligation (But See 11 U.S.C. § 1301, stay against co-debtor in a Chapter 13).
When negotiating on the divorce decree, recognize that a goal of the 2005 amendments to the bankruptcy code was to provided increased protection for ex-spouses and children- and that the bankruptcy code gives “domestic support obligation” creditors special protections
Should an ex-spouse file for bankruptcy, and if the ex-spouse lists your client on Schedule “F” or Schedule “E”, your client should file either: (1) an adversary proceeding to have his/her debt declared non-dischargeable as a DSO or (2) file an adversary proceeding to determine that any and all obligations owed to him/her are of the kind referenced as DSO’s under 11 U.S.C. § 523(a)(5).
While certain exempt property may not be used by the bankruptcy chapter trustee to pay to domestic support obligation creditors, such property is now available to pay the DSO creditor. The state court or the bankruptcy court may then reduce the claim to a money judgment and enforce such judgment.These are some general guidelines to protect your client’s interest in prior to, and in the wake of, a bankruptcy filing by a spouse/former spouse.
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