Illinois Bankruptcy Guide for People Going Through Divorce



If you are in the process of filing for divorce and you or your soon-to-be ex are considering bankruptcy, you probably have several questions about how one spouse’s filing will affect the other. Indeed, things can get tricky when divorce and bankruptcy are both brewing at the same time. Keep reading for answers to some of the important questions spouses have about filing bankruptcy in the midst of a divorce.

#1. What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 bankruptcy typically appeals to a divorcing spouse who has recently lost a job or who makes lower than average wages. In many cases, you can still keep your valuable assets, including your car. Debt collectors must stop calling your home and any wage garnishments will cease immediately. A Chapter 7 bankruptcy discharges all unsecured debt without further repayment except for certain non-dischargeable debts (like student loans, child support, some tax obligations, and criminal fines and penalties).

Chapter 13 bankruptcy is more attractive option for an employed spouse who has a good source of income but is still underwater financially. Like Chapter 7, filing Chapter 13 provides immediate relief from harassing debt collection efforts. The difference is that Chapter 13 includes a repayment plan that allows you to catch up on delinquent payments on secured property within three to five years. If one spouse receives the family home in a divorce, a Chapter 13 can help that spouse catch up on delinquent payments and avoid foreclosure.

#2. My spouse and I are planning to divorce. Can we still file bankruptcy together?

If you and your spouse have decided to end your marriage and are both struggling with overwhelming debt, it may be more cost-effective to file for bankruptcy jointly before filing for divorce. By cooperating in a joint filing, you can save thousands of dollars in separate attorney fees and court costs. One exception is for couples hoping to file Chapter 7 bankruptcy. Because of the income restrictions for filing Chapter 7, it may be more advantageous to divorce first since the court will take into account all household income when determining whether you meet the strict criteria for Chapter 7.

#3. Do I need my spouse’s cooperation to file for bankruptcy?

No, you can file for bankruptcy even if your spouse disagrees with your decision to do so.

#4. How does filing bankruptcy affect an already pending divorce?

Filing bankruptcy when you have a pending divorce case will not affect issues surrounding child support or custody. However, a bankruptcy filing might have an impact on the division of property in your divorce proceeding. Once you file bankruptcy, the property you own individually as well as your stake in the property you own with your spouse becomes part of the bankruptcy estate. As such, there could be delays in dividing those assets while the bankruptcy court determines the value of your interests in the property, and in the case of Chapter 7, whether the property will be sold to cover the debts you owe to creditors.

#5. How does bankruptcy affect my spouse if we are legally separated?

If you decide to file bankruptcy individually while you are legally separated, your spouse will still be responsible for his or her portion of your discharged debt. Some creditors may even hold your spouse responsible for the full amount of the debt. If your personal medical bills are part of the debt you are seeking to discharge, your spouse could be left holding the bill. In Illinois, medical bills incurred while two married people are living together are automatically considered joint debt. For this reason, it is a good idea to discuss your filing with your estranged spouse first to determine whether your spouse is interested in a joint filing.

#6. If my ex files for bankruptcy, does he/she still have to pay me for back-owed child support payments?

Yes, the court considers child support payments a non-dischargeable debt. That means that while your spouse may be able to reorganize or completely discharge other debts through bankruptcy, he or she will still have to pay you what is owed for missed child support payments.

#7. Can my spouse use bankruptcy to avoid paying alimony?

No, like child support, alimony is a non-dischargeable debt that the bankruptcy code treats as a high priority. Your spouse will still be responsible for making alimony payments after filing for bankruptcy.

#8. The divorce court ordered my spouse to pay me cash as part of the property division. Can my spouse discharge that obligation in bankruptcy?

Ordinarily, debts that are incurred as part of a court-ordered property division or pursuant to a separation agreement cannot be discharged. A limited exception to that rule exists where paying the debt would leave the debtor without funds to provide for his or her own support, or where the benefit of discharging the debt outweighs the harm that the discharge will cause to the other spouse. Although bankruptcy courts are very reluctant to permit the discharge of a property settlement debt in a Chapter 7 bankruptcy, it is not unusual for the spouse who owes the debt to include it in a Chapter 13 debt repayment plan.

#9. What impact will my bankruptcy filing have on my spouse’s credit?

Both you and your spouse have a separate credit file with each of the three major credit reporting agencies. Any debts that are in your name only should not appear on your spouse’s credit report. If you and your spouse do not have joint debt, your bankruptcy will have no impact on your spouse’s credit score.

#10. Why am I receiving collection calls and letters for my spouse’s debts?

Some collection agencies may try to collect a debt from both spouses even when only one spouse is legally responsible for the debt. If you are receiving collection calls or letters for debts that belong to your spouse, there are two steps you can take to eliminate the harassment. The first step is to ask the debt collector to provide written proof that you are legally responsible for paying the debt. If they are unable to do so, then you can demand that they stop all collection activities involving you. The second step is to notify your spouse. He or she can ask the court to enforce an automatic stay to cease the collection activity if a bankruptcy has already been filed. The stay does not protect collection efforts against you, but if the debtor is trying to collect a debt that is only owed by your former spouse, the creditor should not be making any collection efforts at all while the bankruptcy is pending.