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If you have gone through a divorce, you surely know what it’s like to go through the seemingly endless array of paperwork and court filings required to ensure that the process is done correctly. This is especially important not only to ensure that you and your ex are both protected from stressful divorce-related litigation in the distant future, but it is also pivotal to make sure you are clear about defining your property and your rights following a divorce.

When you file for bankruptcy, you have to make sure you know and can report on exactly what you own and exactly how much money you owe to whom. If you’ve been divorced and you are considering or in the middle of filing for bankruptcy, the importance of understanding what exactly you own, who you are bound to pay back, and how much that payment has to be becomes even more prevalent. While everyone’s case is different, here are some of the most common effects that divorce has on bankruptcy settlements in Colorado.

You Still Own Your Property

First and foremost, it is helpful to understand how marital property in Colorado works, as each state differs on how property is handled and distributed in divorce. In some states in the U.S., property that is acquired in marriage becomes communal property that is owned jointly by both spouses.

Fortunately, however, Colorado is an equitable distribution jurisdiction. This means that property that is acquired during marriage is owned separately. Property acquired during the marriage is owned by a single spouse and is called marital property for the purposes of equitable division in divorce. Separate property, on the other hand, is property that is acquired by gift or inheritance, after legal separation, or by agreement between the parties. This separate property isn’t included in distribution of property upon divorce.

For those in the midst of planning to file bankruptcy, you can breathe a sigh of relief. Because property cannot be owned by two people at once in marriage or upon divorce, it is unlikely that you will face issues in your bankruptcy settlement regarding a determination of what you own with or without your ex or spouse. Additionally, if your divorce is complete, it is very unlikely that you will be surprised by a notice that you are responsible for any of your ex’s debts.

Chapter 7, Chapter 13, & Bankruptcy Law

The type of bankruptcy you plan to file will have an effect not only on the proceedings of your bankruptcy, but on the type of payments you may be obligated to make to your ex-spouse. The most common types of bankruptcy for consumers are Chapter 7 and Chapter 13.

A Chapter 7 bankruptcy, also known as a liquidation bankruptcy, involves the appointment of a fiduciary that collects all of the filer’s non-exempt property, liquidates that property, and pays all of the proceeds from that liquidation to the outstanding creditors. While it is possible that the debtor lose some assets such as their home, car, or other personal property, Chapter 7 bankruptcy is the best way to start fresh on a clean slate.

Alternatively, a Chapter 13 bankruptcy involves the debtor submitting a proposed payment plan to the Court which is meant to enable the debtor to pay off any outstanding debts to the creditors over a longer period of time- usually 3-5 years- without going through the liquidation process.

In the case of a Chapter 7 bankruptcy following a divorce, it is important to note that any and all debts that are owed to a former spouse, a spouse, or a child are non-dischargeable. Alternatively, when a Chapter 13 bankruptcy is filed, however, it is possible that the bankruptcy settlement plan will not include payments owed to a former-spouse regardless of the fact that the law requires otherwise.

While the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 states that alimony and child support payments must be paid off before all creditors and the U.S. Bankruptcy Code states that debtors can’t be released from paying domestic support obligations through the bankruptcy procedure, there are some ways that these payments can be avoided by a former-spouse filing for bankruptcy.

For example, if a third party becomes involved in any of the alimony agreements, these payments may become dischargeable because they are no longer considered to be domestic. Another way these debts may become dischargeable is if there is an incorrect classification of the alimony in the divorce decree that makes the payments appear to be non-domestic (such as payment of alimony to a company as opposed to the former-spouse themselves).

That being said, everyone’s situation is unique- especially in the case of dealing with bankruptcy after divorce. If you are facing the struggles of bankruptcy and are wondering how your divorce can impact it, don’t hesitate to contact our bankruptcy and family law specialists today to schedule a consultation.

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