Bankruptcy

Bankruptcy and Divorce: Things to Consider in New Jersey

Going through a divorce or going through bankruptcy are two of the most stressful and complicated legal proceedings - and going through them both at the same time is extremely difficult - but not uncommon. Bankruptcy courts in New Jersey will treat a case differently depending on if you’re married, single or divorced. It’s important to have a skilled and experienced lawyer to protect your interests and advise you on how to protect your family and assets. In this video, New Jersey attorney, Abigale Stolfe, explains what you need to consider if you’re going through both a bankruptcy and a divorce.

Watch: Abigale Stolfe explains how bankruptcy impacts divorce in New Jersey.

Transcript

Hi, this is Abigale Stolfe, Stolfe Zeigler New Jersey Family Law Group. And today, we're going to talk about bankruptcy. Not filing bankruptcy, because we are a family law firm, but how filing bankruptcy affects your family law case. If you file for bankruptcy pending a litigation, then the state litigation, the divorce litigation, is put on hold until a motion is filed in the bankruptcy court for the bankruptcy judge to allow the state matter to proceed. So, if you know you are going to be filing for bankruptcy and you intend to do it jointly, then you should do it before you file. If you intend it to be after your divorce is over, then you should wait for the divorce to be over. If you do it in the midst of litigation, then understand it's going to put your state divorce case on hold until the bankruptcy court allows the state case to proceed.

How does it affect your case? Well, let's take the different scenarios. If you file bankruptcy before you file a case for divorce, then the issues that were resolved in the bankruptcy are not going to be part of your divorce litigation. So, if you discharged debt, if you walked away from the house, whatever you may have done in the bankruptcy court, we're not going to address those issues again in your divorce litigation because they've already been resolved in the bankruptcy court.

Likewise, if you've gone through a bankruptcy and you have a trustee repayment, which means that they didn't fully discharge your debt, you have to pay some of it back through the trustee, then that debt will be considered in your divorce. Not the total underlying debt, but instead that bankruptcy repayment. That would be a debt in the divorce litigation that would have to be allocated, meaning who's going to pay how much of that debt.

If you filed during the litigation, then whatever you filed in bankruptcy to discharge would be dealt with either in the bankruptcy court, or it may still have to be dealt with in the divorce court. For instance, if you file in the middle of your case to discharge all of your debt because you know you don't want to keep the marital home, you know your spouse does, but you don't and you don't want that debt on your head, so you're going to make it part of the bankruptcy, we still have to deal with the debt in the matrimonial litigation if your spouse is not filing for bankruptcy. So, while you may discharge it in that context, and you may not have any obligation for it directly to the bank, it is something we will still have to consider under the equitable umbrella of divorce.

In other words, one party just can't say, "Well, I'm walking away from all the debt. So in the alimony calculation, I don't want to consider any debt," if the other party is still going to be saddled with all the debt. So, remember, divorce court is equitable. We look at what is fair and equitable. One party can choose to file bankruptcy, but it may not necessarily eliminate that debt from the court's consideration under the theories of equity.

Now go to the tail end. You've gotten divorced, and now you've decided to file for bankruptcy. In that case, bankruptcy is not going to change any alimony or child support obligation that you either agree to, or that the court ordered as a result of the divorce. It is not going to affect your support obligation. If you file for bankruptcy and you try to discharge equitable distribution, which means, "The judge said I had to pay my spouse $60,000 for the house I'm keeping. I'm going to file bankruptcy and I'm going to include my spouse and therefore, I'm not going to pay the 60,000," that's not going to fly either. Equitable distribution cannot be discharged in bankruptcy. And to the extent that a bankruptcy court decides, "You know what, we can discharge this particular claim," your spouse can go back to family court and get redress a different way.

So just because you file after the divorce, it doesn't necessarily mean you're going to be free of what the divorce court determined was an equitable resolution of the case. Because the divorce court has the authority to go back in and say, "Okay, the bankruptcy court said you don't have to pay your spouse the money for the house. Fine, no problem. But we think she's still owed that money. So, we're going to address it through rehabilitative alimony." That is an argument that is logical and can be fashioned under the statute.

So, don't make a deal under the assumption that you're going to go right after the deal is done, ink's not even dry, "I'm going to go file for bankruptcy and I'm getting out from under this thing." That's not happening. Support is not dischargeable. And even if the distribution can be discharged or is discharged, the court of equity, known as the family part, does have ways to redress, to address, to deal with again, that issue in order to bind the resolution that was originally either agreed upon or ordered.

So, when you're looking at bankruptcy, the cleanest way to address a bankruptcy is before you file for divorce. If you are both agreeable to it, if you both intend to be bound by the bankruptcy decision, it takes a lot of debate out of the litigation and we can deal with only the matter at hand, which is the trustee repayment, assuming there is one.

The messiest time to do it is at the end of the case if you really believe that by filing bankruptcy, you're going to somehow undo the settlement or judgment. If you're simply filing at the end because that's the timing and it's not going to affect the case, the divorce case, then of course that doesn't matter. But if you're filing at the end in order to undo the divorce, that's just going to be very costly, very messy, and frankly, it's probably not going to work in the long run.

If you need assistance in how to address your bankruptcy in connection with your divorce case, give us a call at Stolfe Zeigler New Jersey Family Law Group, (732) 240-9555.

Thank you.

Protect What Matters Most

Bankruptcy can complicate an already stressful, emotional, and complicated divorce. Stolfe Zeigler New Jersey Family Law Group is a firm serving all of New Jersey. Founding partners Abigale M. Stolfe and Sonya K. Zeigler are skilled attorneys and are well-equipped to help individuals navigate the complex family legal system of divorce, child custody, and property distribution. The legal team at Stolfe Zeigler is committed to securing a bright future for the clients and families they serve, through guided insight and zealous advocacy, and fighting to protect what they have worked so hard to earn.

Contact the attorneys at Stolfe Zeigler today at (732) 585-1651 for a divorce consultation.

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