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Burnham Law is an experienced Colorado-based bankruptcy firm, specializing in clients who are filing divorce and bankruptcy at the same time. While it is not unusual for people to go through these at the same time, it can be a complex set of proceedings – one usually precedes the other. How to handle these cases depends entirely on the individual’s circumstances.
Chapter 7 bankruptcies tend to be faster and easier (from the debtor’s perspective), given that in Chapter 7 bankruptcies all unsecured debts are wiped clean, but in Chapter 13 bankruptcies there is an on-going monthly payment obligation of up to 60 months to pay off the remaining debt.
If divorcing parties are amicable enough, we typically recommend jointly filing a Chapter 7 bankruptcy since you will usually save on the filing fees. That’s not as easy to do with a Chapter 13 bankruptcy since there is an on-going monthly payment obligation that one of the parties will be responsible for. Ideally, this can be discussed as part of a mediated settlement, and various trade-offs can be made so you have an equitable outcome for all parties.
The next question to keep in mind is what debts can actually be discharged through a bankruptcy filing. According to bankruptcy law, Domestic Support Obligations (DSOs) cannot be discharged in a bankruptcy. These include alimony, spousal maintenance, and child support, and are regarded as “priority debts”, meaning they have to be paid regardless of whether or not there is a bankruptcy is carried out. Chapter 7 regards DSOs as if a bankruptcy never happened and insures that payments continue either to the ex-spouse or the local child support agency.
Chapter 13 handles them differently, in that any arrears can be cured as a priority claim as part of the payment plan, with the regular monthly obligation handled outside of the bankruptcy.
The key question to be asked is, “What is the nature of the debt obligation? Is it really a Domestic Support Obligation, or is it a general, unsecured debt?”
While Section 523(a)(5) of the Bankruptcy Code is a general provision used to address such questions, this is generally a matter for a judge to decide on the particulars of your specific situation. In this case, it is best to consult with your attorney about your case.