There are special considerations if you filed bankruptcy before your divorce and now need to think about filing another one.
In the last blog we introduced three very practical suggestions to consider if you are now hurting financially and you and/or your ex-spouse filed a bankruptcy at some point BEFORE your divorce. Although the rules about when you can file a new bankruptcy case are not directly affected by your divorce, knowing the quirks in the timing laws and how they may particularly apply in the post-divorce context may make all the difference for you.
Were You Definitely a Debtor In the Earlier Bankruptcy Case?
If your ex-spouse filed that earlier bankruptcy without you officially included in it as a debtor, then you can now file bankruptcy whenever you want. The timing rules don’t apply to you.
Even in a conventional marriage, in the midst of financial and other stresses it would not be surprising if a few years after filing bankruptcy one of the spouses would not remember whether he or she was officially included in that bankruptcy case. The two might have gone to the initial meeting together, and may remember some discussion about whether only one person should file bankruptcy or whether both should, but then not be certain how it was decided in the end. One of the two spouses may have been the major decision-maker and the one who worked more closely with the attorney. Even if both signed the documents, a decision could have been made later to only file under one person’s name.
This very real possibility of not remembering who actually filed bankruptcy would apply all the more so in a marriage that later ended in divorce. At the time that earlier bankruptcy case was filed, there could well have been that much more anxiety, that much less coordination and effective communication between the spouses, and maybe even some intentional misleading.
So, be sure to verify that you were indeed a debtor in the earlier case, either by reviewing documents from the bankruptcy court itself showing you as a “debtor,” or by having your new attorney find out at the beginning of your initial consultation with him or her.
Was a Discharge Granted in that Earlier Bankruptcy Case?
Even if you were definitely a debtor in that earlier case, these timing rules only apply if that case—whether a Chapter 7 or Chapter 13—resulted in a successful discharge (legal write-off) of the debts at the completion of that case. If there was no discharge, then you could file a new bankruptcy case as soon as you want.
So you want to make sure that the previously filed bankruptcy case indeed resulted in a discharge. Most likely there WAS a discharge if you remember that the case was completed successfully. Very close to the end of your case—about 3-4 months after filing under Chapter 7, or 3 to 5 years after filing under Chapter 13—you and your spouse should have received a copy of an order from the bankruptcy court granting the discharge.
However, it is not all that unusual for a person to think they had completed a case successfully when in fact there was no discharge. And this is exacerbated in the marital situation, especially one that may already be seeing the strains of poor communication and mistrust that subsequently ended in divorce.
Chapter 7 “straight bankruptcy” cases have a relatively high success ratio, but even there just one even minor-seeming slip-up could result in the case getting “dismissed”—thrown out—instead of “discharged.” And Chapter 13s often do not make it all the way to completion and discharge. Just because a Chapter 13 case has lasted for years, it can still very easily be “dismissed” instead of “discharged.” Your ex-spouse may have not known, or may have not bothered to tell you.
So, if you have your old bankruptcy documents, see if you can find the discharge order. Bring it and/or whatever papers you have to your initial consultation meeting with us. Even without any documents, we would very likely still be able to find out whether you got a discharge.
Do You Definitely Need A “Discharge” in a New Bankruptcy Case?
Even if you WERE definitely a debtor in that prior case with your ex-spouse (or for that matter, you filed an individual case for yourself without your ex-spouse), AND a discharge was definitely entered in that case, AND the applicable time period has not yet expired, you STILL want to consider whether to file a Chapter 13 “adjustment of debts” case now.
You can’t, you say, the time had not yet expired! Well, you actually CAN file either a Chapter 7 or Chapter 13 case any time, BUT you JUST can’t get a discharge of debts in that new case. But why would somebody file a bankruptcy case knowing that it would not result in a discharge of debts? Isn’t that the whole point of filing bankruptcy?
Not always. True, the discharge of debts is usually the main benefit of a Chapter 7 bankruptcy. However, a Chapter 13 case can provide benefits that can be more important than the discharge of debts. Indeed, sometimes there aren’t even any debts that need to be discharged—especially if the earlier bankruptcy was completed not so long ago.
Instead, the primary reason you would seriously consider filing a Chapter 13 case is if you owe some special debts—usually ones that you can’t or don’t want to discharge—which you need help with.
Debts secured by your home are a good example. If you were awarded the marital home, or succeeded in buying another one but have fallen behind on the mortgage payments, filing an Chapter 13 case will stop a foreclosure and other collection efforts by your mortgage holder. It will also stop a property tax or homeowners’ association lien foreclosure. Chapter 13 can also prevent the recording of income tax liens on your home.
After immediately stopping these collection actions and preventing them throughout the three to five year Chapter 13 case, you would then be given that period of time to pay any mortgage or homeowners’ association arrearage, and any back property taxes. At the end of your case, you would be current on these home-related obligations, thereby saving your home, without needing any discharge of debts.
Or if you have fallen behind on recent income taxes or child/spousal support obligations—debts that can’t be discharged in bankruptcy—Chapter 13 would protect you from these potentially very dangerous creditors while you caught up on these debts. Your payments would be on a schedule dictated by your ability to pay instead of these creditors’ demands. During the course of your Chapter 13 case, you would have avoided months or even years of potential garnishments, tax and support liens, levies, and other aggressive collection actions. And you would end the case current on all your obligations, again without needing any discharge of debts.
A Chapter 13 case will provide all these benefits, regardless that it is filed before the end of the usual waiting time following your earlier bankruptcy case.