Chapter 25 - § 25.11 • THE CLIENT AS DEBTOR — DECIDING WHEN TO FILE

• Jurisdiction: Colorado

§ 25.11 • THE CLIENT AS DEBTOR — DECIDING WHEN TO FILE

As the necessity of bankruptcy and divorce frequently converge, it is imperative that both divorce and bankruptcy counsel be aware of, and be prepared to guide their clients regarding, the impact of each process upon the other. Questions concerning the timing of divorce and bankruptcy are best answered by examining some scenarios.

§ 25.11.1—Generally, Divorce Then Bankruptcy

Scenario One: Mr. Jones engages the services of a bankruptcy attorney and, although he expects his separation from his wife to proceed to divorce in the foreseeable future, he's being plagued by creditor calls and a looming foreclosure and wants prompt relief from a bankruptcy. A Chapter 7 is filed, discharge is granted within the next four months, no assets are collected, and the case closes. After his bankruptcy was filed, Mr. Jones's wife files for divorce and it proceeds on a contested basis. Mr. Jones's personal liability for debt both in his name and jointly in his and his wife's names was discharged in his bankruptcy while the divorce was pending. 11 U.S.C. §§ 524(a) and 727(b). Ms. Jones's personal liability for debt in her name and jointly with Mr. Jones was not addressed in Mr. Jones's bankruptcy, but is allocated at permanent orders, with the court ordering Mr. Jones to pay and hold Ms. Jones harmless from one-half of the marital debt and one-half of their joint mortgage debt. Mr. Jones's bankruptcy did not and cannot discharge his liability to his ex-wife. The obligations to hold his wife harmless (i.e., indemnify) did not exist at the time his bankruptcy was filed; bankruptcy discharges debt that exists at the time of filing of the petition. Id.

Had Mr. Jones waited to file his bankruptcy until after the decree of divorce and permanent orders, he could have chosen to file either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. While in a Chapter 7 case, filed after permanent orders, obligations to hold his wife harmless could not have been discharged, 11 U.S.C. § 523(a)(15), in a completed Chapter 13 case the obligations to hold her harmless from those credit card and mortgage accounts ordered in the divorce would have been discharged. 11 U.S.C. § 1328(a)(2).

Scenario Two: Ms. Jones consults with divorce counsel and immediately files a divorce petition in order to obtain the statutory temporary injunctions. C.R.S. § 14-10-107(4)(b). She then engages bankruptcy counsel for an immediate filing of Chapter 7 bankruptcy...