The Intersection of Dissolution and Bankruptcy

Are you involved in a Colorado legal proceeding involving bankruptcy and dissolution? An experienced Colorado Springs, Colorado divorce and child custody lawyer can guide you through the legal process and assist you in exploring your options. You have one bite at the apple in the court system so make it count.

Sometimes bankruptcy intersects with dissolution proceedings and it is important to know how one impacts the other. Bankruptcy is governed by the U.S. Bankruptcy Code (Code)1 11 U.S.C. §§ 101, et seq., and the Federal Rules of Bankruptcy Procedure. Bankruptcy proceedings in Colorado are further governed by the Local Bankruptcy Rules (L.B.R.) for the District of Colorado, which supplement the Federal Rules of Bankruptcy Procedure. Bankruptcy cases in Colorado are heard in the U.S. Bankruptcy Court for the District of Colorado, located in Denver. In bankruptcy, the court determines the rights of creditors and debtors.

The two most common types of bankruptcy actions for individuals are Chapter 7 and 13 bankruptcies. The general goal of a bankruptcy action is to obtain a discharge of debt. However, a common question for a party who would like to file for bankruptcy is when to do so in relation to a filing for dissolution. Bankruptcy and dissolution of marriage are two different cases heard in different courts, however bankruptcy can have a substantial impact on the dischargeability of certain marital debt and obligations and property division. Therefore, the cases can not be brought in isolation. Family law practitioners who have a knowledge of bankruptcy law can assist clients in making beneficial decisions about timing and the impact of bankruptcy on dissolution.

Bankruptcy is entered into with the goal of discharging some or all debt. If a person determines that he or she can not pay all of his or her debt, bankruptcy is a possible option to eliminate all or part of the debt. The chapter 7 and 13 bankruptcies function in completely different ways. Under a chapter 7 bankruptcy, a person can keep all exempt property and discharge most, if not all, debt, except for nondischargeable debt. Chapter 13 is a more complicated process where the applicant keeps all property and participates in a payment plan to pay off as much debt to creditors as possible over a period of time. If successful in the payment plan, the remaining debt is then discharged.

However, some debt is nondischargeable under both chapters. For example, student loans, restitution claims, domestic support obligations, in particular child and spousal support, and certain tax liabilities, are not dischargeable. Thus, the type of debt that a person has may be a factor in determining whether bankruptcy will meet financial goals. Some other debt, such as that based on fraud, may be nondischargeable if the creditor files an objection to the discharge. Also, some debt is not dischargeable in under Chapter 7, however is under Chapter 13, such as a court-ordered obligation to pay marital debt. Compare 11 U.S.C. § 523(a)(15) to 11 U.S.C. § 1328(a).

While bankruptcy offers a remedy for debt, it also comes with substantial financial consequences. For example, there is a negative impact on consumer credit reports for up to 10 years, which impacts the ability to receive credit during this time. It can also impact certain employment, such as that requiring a security clearance.

Turning Change Into Opportunity in Colorado Springs, Colorado Divorce and Child Custody

A highly knowledgeable and experienced Colorado Springs divorce and child custody lawyer can guide you through Colorado Springs divorce and child custody matters by negotiating, mediating and litigating on your behalf. You can focus on moving to a better future instead of spending your time attempting to navigate complex legal rules and procedures.

Sabra Janko from Janko Family Law has more than 20 years of legal experience and has written “the book” on Colorado divorce and family law – “Colorado Family Law With Forms”, published by LexisNexis, which you can find at https://store.lexisnexis.com/products/colorado-family-law-with-forms-skuSKU02903. Contact us at 719-344-5523 or complete our online scheduling request for a free 30-minute informational consultation. We also offer paid advice sessions for a more in-depth analysis of your case.