Filing Bankruptcy During Divorce

Dallas—Fort Worth Bankruptcy Lawyer Explains

Video Transcript:

David Shuster: 

Get legal advice in both arenas because... So you're not left with something that you can't undo later.

Molly Hendrickson: 

What should you know about bankruptcy if you're going through a divorce? We're going to talk to attorney David Shuster about that on today's Ask The Lawyer. David, thanks for joining us.

David Shuster: 

Yeah, no problem, thanks. I'm glad to be here.

Molly Hendrickson: 

So in your experience, is it common for people considering divorce or in the middle of a divorce to consider filing for bankruptcy?

David Shuster: 

Yes, it is. It just depends on their situation. The two do often go hand-in-hand, a lot of times the bankruptcy is caused by the divorce, especially when you have two income earners, or even just one income earner who now has a large child support or alimony payment to make. So usually it's something that happens after a divorce, very common in bankruptcy, you have to give some testimony about what caused your situation, and a very common answer is divorce.

Molly Hendrickson: 

So should married couples in Texas file for bankruptcy before they get divorced? You say it usually happens after.

David Shuster: 

Listen, if you got married couples that are contemplating a divorce and getting along, they should definitely join efforts. At least talk to an attorney together, or if they talk to separate attorneys, they should take notes and then get together with one another. Filing, there can be reasons why you should file together, and there can be reasons why you should file separately. Usually the biggest determining factor is, are the couples getting along well enough to do something like that together? Fortunately, the rules are now, telephone hearings and Zoom hearings. So they don't have to be in the same room together if that's a problem, but usually it is contingent on the ability of the spouses to actually talk and get along and make joint decisions.

Molly Hendrickson: 

So can somebody file for bankruptcy individually, even if they're married?

David Shuster: 

Yeah, definitely. That's a big question, comes up a lot. When it started coming... I've been doing this for 20 years, but when it started coming up, it would be somewhat surprising to me that, okay, well, we've been married... And not short marriages either. Lifetime, I've been married 20 years and then say, "Okay." Start talking about the situation, all the debt is in one spouse's name, or let's say 90% of it or 50%, whatever. There's enough in the one spouse's name to just do it in the one spouse's name, and there's no problem at all with that. The person's spouse who's not filing, will be listed on there that they're married and that you have community property together, there's a lot of considerations to be made for the non-filing spouse is what they're called. But it will not affect their credit. And if all of your property, community or otherwise fits into the exemptions, meaning you can keep the property, then there's no effect at all on the non-filing spouse. They don't have to appear anywhere, the don't have to say anything, they don't have to really... Even providing documentation of things is not really necessary, although sometimes helpful. So yeah, certainly one spouse can go through bankruptcy, leaving the other spouse with just their credit as it is, and not really affected in any way.

Molly Hendrickson: 

And are the rules the same for somebody who is filing for bankruptcy as an individual who's in the middle of a divorce, but the divorce isn't finalized yet?

David Shuster: 

Yeah, same rules. Bankruptcy basically involves what is your situation at that time, but... Yeah, no problem filing in that situation either, the rules are the same. The biggest thing is that the divorce hasn't happened yet, so is there going to be a distribution of property one way or another, right? So that's kind of a question, is there an asset of your husband or wife who you have yet to divorce from, that might be an asset in a bankruptcy estate? That's a consideration. But yeah, you lay down your situation with my office on paper, and then ultimately with a filing with the court to explain how things are. We review everything to make sure that there's not going to be any surprises.

But yeah, it can affect the divorce in that, if there is, the divorce has yet to be finalized and the judge has yet to award property to one spouse or the other, the bankruptcy will put a hold on that with the automatic stay and so it can be lifted with the agreement of parties or after a hearing. But I think that goes to your original question is how does it affect things? It could slow down the divorce, and sometimes people want that, sometimes they don't, but yeah, the automatic stay will slow down a divorce when it comes to assets of the bankruptcy estate, and we don't want to... The husband, he listed all of his assets in the bankruptcy estate but in the divorce, everything is going to the wife, so it just puts the breaks on awarding property either way until the bankruptcy is done, or until the judge approves the bankruptcy stay to be lifted.

Molly Hendrickson: 

And what about in a situation where one spouse has been abandoned. Can that spouse, that remaining spouse file for bankruptcy?

David Shuster: 

Oh, sure, yeah. Yeah, they can. And if they have debt, they should and not let the fact that there's still... It happened... Again, doing this a while, all kinds of things, you learn. And one of them is that towards the very end of a consultation, it's like, "Oh yeah, by the way, I'm married." Like what? It's just, like you said, it's this abandonment situation. Whether it's they go to another country, another state, there's all kinds of different situations that are out there. And so, yeah, if you are "abandoned" or you've lost touch with your spouse, go ahead and file the bankruptcy. If the trustee thinks that your spouse, who you're still technically married to might have an asset that's property of the estate, then it's up to the trustee to go chase that down. Usually it doesn't happen. If the spouse doesn't know where the other spouse is, usually a trustee doesn't. So yeah, they can move forward and really should move forward with a divorce as well. Which I kinda handle both of those areas if it's not, for dealing with parties that are not testing one another. But yeah, they should move forward, get the relief that they need. There's ways to serve people by citation too, so you can get the divorce and the bankruptcy, even if you're abandoned.

Molly Hendrickson: 

So do you work with family law attorneys in these types of situations, and what should a person do if they're thinking about bankruptcy and also needing a divorce?

David Shuster: 

Yeah, in fact, like I said, I've handled divorces, I can only represent one party in a divorce but I've handled sort of more of the uncontested or asset-only type divorces, while a bankruptcy is going on as well. Either before, or after, or at the same time. To answer your question, yes, I do make myself available for a phone call or an email with the family law attorney. And the two have impacts on one another, and particularly when we're talking about awarding child support or alimony, or let's say one spouse is getting saddled with the obligation and a divorce decree to pay the other spouse, not for child support or alimony, but for some other distribution, hey I would say, equalize things. You know, "I have to pay my ex-spouse X amount of money a month." And sometimes there's an agreement where one spouse has to pay the other spouse's debt because this spouse took all these things. They interplay with the bankruptcy, and so... Yeah, if you have financial difficulty and you also have marital strife, like we alluded to, they do go hand in hand a lot. One tends to cause the other, it's important to talk to both attorneys at the same time, rather than just saying, "Oh, I'll deal with this later, first we gotta get a divorce," or "I'll deal with the divorce... " Get legal advice in both arenas, so you're not left with something that you can't undo later.

Molly Hendrickson: 

David, thanks for sitting down with us today.

David Shuster: 

Yeah, thanks. Yeah, I appreciate it.

Molly Hendrickson: 

And that's going to do it for this episode of Ask The Lawyer. My guest has been David Shuster. If you want to ask David about your situation, call the number on the screen. Thanks for watching, I'm Molly Hendrickson for Ask The Lawyers.

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