Chapter 25 - § 25.1 • INTRODUCTION

• Jurisdiction: Colorado

§ 25.1 • INTRODUCTION

Bankruptcy and dissolution of marriage often go hand in hand. Bankruptcy is governed by the U.S. Bankruptcy Code (Code),¹ 11 U.S.C. §§ 101, et seq., and the Federal Rules of Bankruptcy Procedure. Bankruptcy cases in Colorado are heard in the U.S. Bankruptcy Court for the District of Colorado, which is located in Denver. The person filing for bankruptcy is known as the "debtor." The bankruptcy court administers property and determines rights between creditors and debtors. The interplay between bankruptcy law and domestic relations law is complicated, and counsel and parties should always consider the impacts bankruptcy may have on their cases.

Generally, a debtor voluntarily initiates bankruptcy proceedings by deciding when and under which chapter to file. (A group of creditors can force a debtor into involuntary bankruptcy, but that is virtually unheard of in consumer bankruptcy. 11 U.S.C. § 303.) A debtor usually files bankruptcy to receive a discharge of his or her debts. Upon completion of the requirements set forth in the Code, the debtor receives a discharge, which generally operates as a permanent bar to creditors enforcing debts.

Some debts, such as most student loan liabilities, restitution claims, domestic support obligations, and certain tax liabilities, are not dischargeable in bankruptcy under any chapter. 11 U.S.C. §§ 523(a)(1), (5), (7), and (8). Other debts, such as those based on fraud, may be excluded from discharge if a creditor files a timely objection to discharge in the bankruptcy court. See 11 U.S.C. §§ 523(a)(2), (4), and (6). Certain debts, such as orders to pay marital debt and indemnify an ex-spouse, are not dischargeable in a Chapter 7 bankruptcy but are dischargeable in a completed Chapter 13 bankruptcy. Compare 11 U.S.C. § 523(a)(15) to 11 U.S.C. § 1328(a).

If a client is considering bankruptcy, there are several issues to consider. Bankruptcy cases are reported on consumer credit reports for up to 10 years and can affect a client's access to credit for housing, transportation, and other necessities of life. Some employers screen applicants for creditworthiness; thus, bankruptcy may affect certain employment opportunities.

Filing bankruptcy while the dissolution is pending may slow the process of obtaining a final decree and property and debt division. If either spouse files bankruptcy while the dissolution is pending, the bankruptcy action will operate to stay any part of the case dealing with property or...