How Will Filing for Bankruptcy Affect My Divorce?
Married couples have the option of filing for bankruptcy together. This enables both spouses to deal with any joint or marital debts in a single bankruptcy proceeding. But individual spouses can also file for bankruptcy without the other partner.
So what happens when one spouse files for bankruptcy and the couple later divorces? Iowa follows an “equitable distribution” rule in divorce cases. This means that a judge must divide both the couple’s assets and debts in an equitable manner, taking into consideration a number of factors.
Iowa Court of Appeals: Bankruptcy Does Not Affect Equitable Division of Marital Debts
A recent decision from the Iowa Court of Appeals, Marriage of Brincks and Heying-Brincks, illustrates how one spouse’s bankruptcy can affect an equitable distribution. This case involved a couple that was married for 13 years. The couple accumulated substantial debts during the marriage and initially indicated to the divorce court that they planned to file a joint bankruptcy petition in federal court.
Ultimately, the husband ended up filing for bankruptcy alone. The wife said she decided not to join the filing as “most of the marital debts had been paid—several by garnishment of her wages.” The couple also abandoned their house to foreclosure after they were unable to continue making their mortgage payments.
Meanwhile, the husband successfully completed his Chapter 7 bankruptcy and received a discharge from the federal court. This meant he was no longer legally obligated to pay his share of any marital debt. Based on this, the divorce court assumed it could not apportion any share of the outstanding marital debt to the husband in its final divorce judgment.
But the Court of Appeals disagreed with that reading of the law. The appeals court noted there was a “tension between applying the bankruptcy laws and applying the equitable foundations of our dissolution-of-marriage laws.” Indeed, the Court of Appeals said it was unaware of any previous Iowa case where one spouse obtained a bankruptcy discharge during a pending divorce.
After looking at how other states have addressed similar conflicts, the Court of Appeals here ruled that while the husband’s “liability to his creditors was discharged,” by the bankruptcy court, “his liabilities to the marriage were not.” The divorce court was therefore required to still apportion an equitable share of the marital debt to the husband.
Note this does not mean the husband is actually required to pay his share of the debt. It simply means the wife cannot be burdened with the entire share of the debt merely because she opted not to file for bankruptcy. To rule otherwise, the Court of Appeals noted, would “unfairly burden” the wife with a “disproportionate share of the joint marital debt.”
Speak with a Southeast Iowa Bankruptcy Lawyer Today
Even if you are not contemplating divorce, if you and your spouse are unable to pay your mounting debts, you should consult with a qualified Southeast Iowa Chapter 7 bankruptcy attorney to learn more about your options. Contact the Noyes Law Office today to speak with a bankruptcy lawyer.