What Happens if My Soon-to-Be-Ex Files for Bankruptcy?

In dire situations involving finances, married couples sometimes declare bankruptcy as a last resort. But this is never an easy process. The situation is even more complicated when a divorce or legal separation is impending and only one spouse files for bankruptcy protection.

When either spouse files for bankruptcy after a petition for dissolution is filed but before the final decree is entered, there are two important aspects: its consequence on community property and debts and its impact on the divorce process and settlement.

New Mexico is one of the states that uses a “community property” system in terms of marital properties. This means that, generally speaking, all earnings and property obtained during the marriage by either spouse are shared with the other. Similarly, both share equal responsibility for debts incurred by either spouse during the marriage. For example, when either spouse buys a car using an installment agreement, both partners become co-owners of both the car and the debt.

When one of the spouses files a bankruptcy case while a dissolution proceeding is pending, all of the couple’s property is subject to the proceeding. And when the proceedings are over, both spouses receive a release of all “dischargeable community debts.”

However, if the couple later divorces, the law provides that the non-filing spouse cannot receive the benefits of a bankruptcy discharge. This means that debt collectors can continue to seek payment from the other spouse who did not file bankruptcy. Thus, the non-filing spouse may be on the losing end of the stick, potentially facing accountability for community debts.

On the brighter side, a bankruptcy case does not stop or slow a divorce case. The 2005 Amendment to the Bankruptcy Law ensures no delay in divorce litigation merely because a bankruptcy petition is filed.

Support payments are always considered non-dischargeable responsibilities. This means that even when bankruptcy is granted by the federal court, a spouse ordered to provide spousal support or child support must fulfill those responsibilities. They cannot get out from under them by filing for bankruptcy. And in most cases, debt and property division in a valid divorce order cannot be avoided, either.

An experienced New Mexico family lawyer can help you understand the interplay between family law and bankruptcy law. If you have questions and need trusted legal advice, contact the Lightning Legal Group. We understand the toll that divorce can take on a person, and we’ll help you find your way. Contact us today at (505) 247-2390 for experienced legal advice.

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