How to file bankruptcy in Virginia after filing for divorce:
It may be advantageous to file bankruptcy in Virginia after filing for divorce, depending on the particular circumstances and timing of your cases, and the relief you seek. The actual mechanics of filing the bankruptcy itself are fairly straight forward. You can file yourself, use a bankruptcy petition preparer, or use a lawyer who has been admitted to practice in the U.S. Bankruptcy Court. The official forms required for filing bankruptcy are posted on the website for the U.S. Bankruptcy Court for the Eastern District of Virginia. Before filing bankruptcy you must complete a required credit counseling course from a provider approved by the U.S. Trustee’s office, or request an exception for certain grounds. You must pay the filing fee in whole when you file, or you may ask the court for permission to pay in installments. About a month after filing bankruptcy, you will be required to attend a scheduled meeting of creditors, where the trustee appointed in your case will ask you certain questions. Creditors have a right to attend this meeting, but rarely show up. In order to receive a discharge in a chapter 7 case, you must also complete a required debtor education course from an approved provider no later than sixty days after your meeting of creditors and file a certification with the court. In a chapter 13 case, you must complete the required debtor education before completing your plan payments and receiving a discharge. In the event you elect to reaffirm a debt in your chapter 7 case, you may have to attend a hearing concerning whether the court will approve the proposed reaffirmation agreement.
After filing for divorce, you should consider several issues before filing a bankruptcy case in Virginia. First, should you file a joint bankruptcy case with your spouse after filing for divorce? You and your spouse are eligible to file a joint case while you are still married. A joint bankruptcy case may save you both in fees and costs and will discharge your dischargeable marital debts (along with your dischargeable separate debts), which are often a point of contention in divorce cases. By getting rid of your marital debts in bankruptcy, you have eliminated an area to litigate in equitable distribution in your divorce case, or an area that may prevent you from negotiating a separation agreement or property settlement agreement. You should consider whether there is actual conflict of interest with your spouse before filing a joint case. While a joint chapter 7 case for estranged spouses may make sense, it is much more difficult to justify a joint chapter 13 case after filing for divorce because of the ongoing responsibilities and payments required in chapter 13, and the potential for one spouse to discharge a debt to the other spouse. You should also consider whether your spouse might have engaged in some conduct which could jeopardize your prospects for obtaining bankruptcy relief, such as transferring or concealing assets to defraud creditors, submitting false or fraudulent loan applications, or withdrawing large amounts of cash or buying luxury items with no intention of repaying the debt.
Second, what kind of bankruptcy case should you file after you have filed for divorce in Virginia? The answer to this question will depend on the relief you seek and the nature of your debts. Some folks need bankruptcy protection to preserve valuable property, such as the marital residence, so it will be available for equitable distribution in Virginia. Other filers primarily need a discharge of credit card debt, or protection from a garnishment of wages or a bank account. Chapter 13 bankruptcy discharges a broader range of family law debts than chapter 7 bankruptcy will. Domestic support obligations, such as alimony, child support, or spousal support are not dischargeable in either chapter 7 bankruptcy or chapter 13 bankruptcy. Other debts owed to a spouse, former spouse or child of the debtor which are not domestic support obligations and that were incurred in a divorce or separation, or in a separation agreement or property settlement agreement, or from a divorce decree or court order of a court of record, may be dischargeable in a chapter 13 bankruptcy case, but are not dischargeable in a chapter 7 bankruptcy case.
Third, what is best time to file for bankruptcy after filing a divorce in Virginia? The timing of a bankruptcy case filing can be critically important, and has been addressed in detail in a separate page in this blawg: “Should I file for bankruptcy before divorce, or divorce before bankruptcy?”. Certainly, if you wish to discharge family law debts that are not domestic support obligations in a chapter 13 case, it is important that those claims have come into existence, and are not merely potential claims. All other factors being equal, you may wish to wait until the conclusion of equitable distribution or the execution of a separation agreement or property settlement agreement, or the entry of a divorce decree or other court order, before filing for chapter 13 bankruptcy relief. The downside to waiting is the possibility that the nonpayment of a particular obligation required by the court may potentially subject the debtor to a contempt of court charge.
Fourth, will you need relief from the automatic stay in bankruptcy to continue or conclude your divorce case? The automatic stay in bankruptcy allows a spouse to seek the dissolution of a marriage, as long as the spouse does not seek equitable distribution of property of the bankruptcy estate. The safest course is to file a motion for relief from the automatic stay in a chapter 13 bankruptcy case or in a lengthy chapter 7 case, before proceeding with equitable distribution in your divorce case, or entering into a separation agreement or property settlement agreement if you intend to affect marital property or debts, or even post-petition earnings of the debtor, which are property of the estate in a chapter 13 case. Actions taken in violation of the automatic stay are void. The cost of seeking relief from stay may be small compared to the consequences of a void separation agreement or void equitable distribution decree.
You should consult with your Virginia bankruptcy and divorce lawyer, or Richmond divorce lawyer James H. Wilson, Jr., to discuss the advantages and disadvantages of filing bankruptcy after divorce.