Divorce and Bankruptcy in Colorado

As an experienced Cherry Hills bankruptcy lawyer, I typically represent clients who are facing the prospect of simultaneously filing for divorce and bankruptcy in my Denver, Colorado law practice. From a timing standpoint, the obvious threshold question arising involves which matter should be formally addressed in court first. Well, it depends on the debtors’ particular situation (personally and financially).

More difficulties arise in chapter 13, which requires an ongoing monthly plan payment made to the bankruptcy trustee for 36 to 60 months, than in a more simple chapter 7, where most unsecured debts are quickly discharged without ongoing commitment to a long term monthly payment plan. Simply because the attorney’s fees and court filing fees are less, I often recommend that soon-to-be-divorcing couples file a joint petition for bankruptcy before filing for divorce, particularly if it’s a chapter 7. But, with chapter 13 matters, the issue is more complex due to the possibility of having husband and wife (who, with a failing relationship, likely do not get along) determine who will be making the plan payment for the next 3-5 years. But, joint representation of (ex) husband and wife, who are on the verge of divorce, also may require that each party waive any potential conflict of interest.

Conversely, a better option may be to represent only one party (due to a certain conflict of interest) with the divorce being filed prior to the bankruptcy filing. For instance, my client may have a significantly lower income than the soon-to-be-ex-spouse thereby pushing him/her into a chapter 13 payment plan, absent a prior divorce or separation. In this situation, my client may have unsecured debts all of which can be discharged (only credit card debt and medical bills but no student loans, domestic support obligations or tax liabilities) and would have no other reason to contemplate a chapter 13 filing.

Regarding any issue of debts owed to the other (ex) spouse, the issue that may then come up is what debts can be discharged in a chapter 7 or chapter 13. Under the Bankruptcy Code, Domestic Support Obligations (DSOs), which include alimony, spousal maintenance, and child support, are classified as priority debts which cannot be discharged under either chapter. In chapter 7, the domestic support obligation simply remains outstanding and subject to payment directly to the creditors (either the ex-spouse or local child support enforcement unit) as if no bankruptcy was ever filed. In chapter 13, any past due arrears stemming from the particular domestic support obligation can be cured as a priority claim in the chapter 13 plan, with the regular monthly obligation to still be paid outside the bankruptcy.

The critical issue in this context is whether a given debt owed to an ex-spouse is a domestic support obligation which cannot be discharged or, rather, a general unsecured debt (similar to credit card debt or medical bills), without priority, which can easily be discharged. Enter Section 523(a)(5) of the Bankruptcy Code which serves as a catch-all statute. Although litigation in the courts has yielded few cases addressing Section 523(a)(5), such provision may encompass other obligations ordered in the domestic court, such as that to pay attorney’s fees to opposing counsel and to pay jointly incurred marital debts.