What Happens If One Spouse Files For Bankruptcy During A Divorce?
Divorce is often described as one of the most stressful events a person can experience. When financial challenges intersect with marital dissolution, the process becomes even more complicated. One particularly complicated scenario arises when a spouse files for bankruptcy during divorce proceedings. While bankruptcy can provide relief from overwhelming debt, it can also disrupt the divorce process and impact the Court’s ultimate allocation of debts and assets. For Illinois residents, understanding the interplay between bankruptcy and divorce is essential to protecting both financial and legal interests — and our Chicago, IL divorce lawyer is available to help you navigate this process.
Automatic Stay & Divorce Proceedings
When a person files for bankruptcy under either Chapter 7 or Chapter 13, an automatic stay goes into effect immediately. This stay is a court order that halts most collection activities, including lawsuits, garnishments, and foreclosures. In the context of divorce, the automatic stay can create confusion about which parts of the divorce can continue, and which are temporarily paused.
Under Illinois law, the divorce itself—the legal dissolution of the marriage—can still move forward. Courts can enter a divorce judgment, even if one spouse is in bankruptcy. However, certain aspects of divorce, particularly those involving financial distribution, may be significantly affected. For example, any attempt to divide marital property or enforce judgments related to debts included in the bankruptcy petition may be suspended until the bankruptcy court resolves the debtor spouse’s obligations.
It’s important to note that the automatic stay is not absolute. Matters related to child support and spousal maintenance (alimony) are generally exempt from the stay because these obligations are not dischargeable in bankruptcy. Illinois courts recognize that the welfare of children and the financial support of a former spouse cannot be indefinitely delayed due to bankruptcy.
Division Of Debts
Debt division is one of the most difficult areas affected when one spouse files for bankruptcy during a divorce. In Illinois, the division of marital debts depends on whether the debts are dischargeable or non-dischargeable.
Dischargeable debts typically include most credit card balances, personal loans, and medical bills. If a spouse files for bankruptcy, these debts may be eliminated entirely. However, in divorce, even if one spouse is discharged from a debt, the court may still hold that spouse responsible to contribute towards the debt if the other spouse remains liable on any joint debts. Illinois follows an equitable distribution model, meaning debts accumulated during the marriage are divided “equitably,” not necessarily equally. This distinction becomes critical if one spouse’s bankruptcy only partially relieves their obligation.
Non-dischargeable debts—such as certain taxes, student loans, and child support or spousal support arrears—remain the responsibility of the debtor. Even if a bankruptcy filing removes other obligations, the debtor must continue to pay these non-dischargeable debts.
Joint debts present another challenge. If both spouses are jointly liable on a credit card or loan, and one spouse files for bankruptcy, the other spouse may remain fully responsible for repayment. This is why divorce agreements in Illinois often include detailed provisions assigning responsibility for joint debts and protecting the non-filing spouse from financial fallout.
Effect On Property Division
Bankruptcy also impacts the division of marital property. When a spouse files for bankruptcy, the bankruptcy court appoints a trustee to oversee the debtor’s estate. This trustee has control over the debtor’s assets and can sell or otherwise manage property to pay creditors. In practical terms, this can interfere with the divorce process because certain assets that would normally be divided between spouses may now be under the trustee’s control.
For example, if a marital home is jointly owned and one spouse files for bankruptcy, the trustee may have the right to sell the property to satisfy creditors. Illinois courts generally allow the divorce process to continue in parallel, but coordination between the family court and the bankruptcy court is essential to guarantee equitable distribution. Couples in this situation often need to work with both a divorce attorney and a bankruptcy attorney to navigate conflicting legal priorities.
Property division can become even more complicated when one spouse has significant assets separate from the marital estate. In Illinois, separate property—such as inheritances or gifts—may not be subject to division in a divorce, but it could still be accessible to the bankruptcy trustee under certain circumstances if commingled with marital funds.
Spousal Support & Child Support
One of the most important considerations for couples facing both divorce and bankruptcy is understanding how support obligations are treated. In Illinois, child support and spousal support are generally nondischargeable, meaning that filing for bankruptcy does not relieve a spouse of the obligation to pay them.
This has critical practical implications. Even if one spouse eliminates most of their other debts through bankruptcy, they remain responsible for ongoing support payments. In addition, any unpaid past-due child support or alimony also survives bankruptcy. Courts and trustees cannot alter these obligations, and failure to pay can result in enforcement actions, wage garnishments, or contempt proceedings.
Because support obligations survive bankruptcy, Illinois spouses must carefully consider how bankruptcy timing may impact negotiation strategies during divorce. Failing to account for ongoing support payments can undermine financial planning and risk leaving one spouse underprepared for life after divorce.
Strategic Considerations
Given the complications outlined above, couples must weigh strategic considerations when one spouse contemplates bankruptcy during divorce. A key question is whether bankruptcy should be filed before or after the divorce.
Filing for bankruptcy before divorce can simplify certain aspects of debt division by eliminating dischargeable debts and clarifying the financial picture. However, it can also limit the divorcing spouse’s ability to claim certain assets and may complicate joint financial matters.
Filing after divorce may allow the couple to negotiate property division and debt allocation without interference from the bankruptcy court. On the other hand, waiting too long may expose one spouse to creditor actions or wage garnishments during the divorce process.
Illinois residents should also consider the potential impact on credit, asset protection, and long-term financial planning. Working closely with both a divorce attorney and a bankruptcy attorney is essential to developing a coordinated strategy that minimizes risk while safeguarding legal and financial rights.
Case Example Of Bankruptcy During Divorce
Consider a hypothetical Illinois couple, Jane and Michael. Jane files for divorce after discovering that Michael has accumulated substantial credit card debt. During the proceedings, Michael files for Chapter 7 bankruptcy.
The bankruptcy triggers an automatic stay, temporarily halting any legal actions to divide debts. Jane can still proceed with the divorce, and the court can determine custody and parenting time. However, any attempts to assign joint credit card debt to Michael may be complicated by the bankruptcy.
Meanwhile, Michael’s spousal support obligations to Jane remain intact and enforceable, as do his obligations for child support for their two children. The bankruptcy trustee reviews Michael’s assets but finds that the marital home, which Jane will keep, is not part of the bankruptcy estate. With coordinated legal guidance, Jane and her attorney can navigate the intersection of bankruptcy and divorce, making sure that both support obligations and property rights are appropriately addressed.
A Proactive Path Forward
Bankruptcy during divorce adds a layer of legal and financial difficulty that requires careful planning and professional guidance. In Illinois, while divorce proceedings can continue despite an automatic stay, property division and debt allocation may be impacted by the bankruptcy court’s oversight. Nondischargeable debts, including spousal and child support, remain enforceable, underscoring the need for careful coordination between family law and bankruptcy counsel.
For Illinois residents navigating divorce with the added complication of bankruptcy, a proactive, strategic approach is essential. Understanding how bankruptcy affects automatic stays, debt division, property distribution, and support obligations can help protect both parties’ rights and financial stability. Coordinated legal strategies can turn a potentially chaotic situation into a manageable process, making sure that the divorce and bankruptcy outcomes are fair, equitable, and legally sound.
If you need help with a divorce or other family law matter, Merel Family Law is here to help. We do not want you to feel like you are alone during this stressful time and have 24/7 live answering. We have three offices in Illinois and one in Michigan. Reach out to us today or whenever you are ready to talk.
