It’s no secret that divorce can be expensive. It’s also no secret that financial problems are a leading cause of divorce. For that reason, numerous Indiana residents choose to file for divorce and bankruptcy at roughly the same time. In many cases, the former spouses file a joint bankruptcy petition while they are dissolving their marriage. Understanding how Chapter 7 bankruptcy can impact your divorce proceedings is essential to anyone filing for bankruptcy at the same time as a divorce. 

Asset division and Chapter 7 bankruptcy

Indiana law requires the equitable distribution of marital assets. This means that assets are divided in a manner that is considered fair and just by the courts, not necessarily equally. Although there is a presumption that the assets will be divided equally, the court can find reason to divide the marital estate unequally if it would impoverish one spouse. When one spouse files for Chapter 7 bankruptcy, it can complicate the process of equitable distribution. The bankruptcy court may place a stay on all property, preventing creditors from collecting debts. 

This stay also includes the division of marital assets. The bankruptcy trustee takes control of the debtor’s non-exempt assets to pay off creditors. The remaining assets, if any, are subjected to division in the divorce. Filing for Chapter 7 bankruptcy can thus delay the divorce process and impact the expected distribution of marital assets. 

Alimony and Chapter 7 bankruptcy

Alimony, also known as spousal maintenance in Indiana, is another aspect of divorce that can be impacted by a bankruptcy filing. In Indiana, the court can award spousal maintenance based on various factors. These include the length of the marriage and each spouse’s financial situation. However, unlike some other types of debt, spousal maintenance cannot be discharged in a Chapter 7 bankruptcy. 

The spouse who owes spousal maintenance must continue to make payments regardless of the bankruptcy filing. If the paying spouse’s financial situation significantly changes due to bankruptcy, they can petition the court for a spousal maintenance modification. The court would then decide whether to alter payments based on the newly changed circumstances. 

When to file a Chapter 7 bankruptcy

If you are contemplating divorce and need to file for bankruptcy, filing before you proceed with the divorce can significantly simplify the process of distributing marital debts. The majority of these debts will be discharged in bankruptcy. If you intend to file a bankruptcy petition together, it may make sense to file it before the divorce proceedings.

However, it is simpler, in most cases, to file after your divorce is finalized. This is especially true if only one spouse needs to file for bankruptcy. 

Talk to a Danville, IN, Bankruptcy Attorney Today

The Indiana bankruptcy attorney, Chris Arrington, represents the interests of those who are filing for bankruptcy during, before, or directly after a divorce. Call our office today to schedule an appointment, and we can begin discussing your next steps right away.