Many of my clients come to me during or after a divorce, which is one of the hardest things a family goes through. Sometimes the debt caused the divorce. More often the divorce caused the debt: two households on one household's income, legal fees, a house nobody can afford to keep or sell. By the time someone raises bankruptcy, they are often exhausted, the family law case is already open, the parties are negotiating, and a decree is weeks away.
That is exactly when sequencing matters most. The same bankruptcy, filed two months apart, can produce very different results for both spouses. I wrote this for people in that position, who deserve clear answers at a hard time, and for the family law attorneys, financial advisors and therapists who send them to me, so that the question gets asked while the answer can still change the outcome.
Does filing bankruptcy stop a divorce in Colorado?
No. The dissolution can proceed, but the property division generally cannot. When a bankruptcy is filed, the automatic stay, a federal court order that freezes most litigation and collection against the person who filed, takes effect immediately. Section 362(b)(2) of the Bankruptcy Code carves out several family law matters. The stay does not apply to a proceeding to establish paternity, to establish or modify a domestic support obligation, to decide parenting time and decision making, or to dissolve the marriage, except to the extent the proceeding seeks to divide property that is property of the bankruptcy estate.
In practice, the Colorado district court can keep hearing the dissolution, entering temporary orders on maintenance and child support, and allocating parental responsibilities. What it cannot do, without permission from the bankruptcy court, is divide the filing spouse's property, because that property now belongs to the bankruptcy estate. The parties can ask the U.S. Bankruptcy Court for the District of Colorado for relief from the stay so the family court can finish, or they can wait for the bankruptcy to run its course. Collection of support from property outside the estate, and wage withholding for support, also continue.
Can child support and maintenance be discharged in bankruptcy?
No, never. The Bankruptcy Code calls child support, maintenance and similar obligations domestic support obligations, and defines them by what they do, not what the decree calls them. They are first priority unsecured claims under § 507(a)(1), and § 523(a)(5) excepts them from discharge in every chapter.
Chapter 13 adds its own requirements. A plan must pay priority support arrears in full, the debtor must stay current on support that comes due after filing, and falling behind on current support is grounds for dismissal. The debtor must also certify that support is current before receiving a discharge. For a family law attorney and the client relying on that support, the practical message is reassuring: the support award survives the other spouse's bankruptcy intact.
What happens to a property settlement owed to a former spouse?
It depends on the chapter, and this is one of the most important differences between them. Section 523(a)(15) excepts from discharge debts owed to a spouse, former spouse or child that are not support but that arise in a divorce, separation agreement or related court order. That covers an equalization payment, an obligation to pay a spouse for her share of the equity in the house, and a promise to hold the other spouse harmless on joint debt.
In Chapter 7, those debts survive automatically. The former spouse does not need to file anything. In Chapter 13, § 1328(a) lists the debts excepted from the discharge a debtor receives after completing the plan, and § 523(a)(15) is not on that list. A property settlement debt in a completed Chapter 13 is treated like other unsecured debt: it is paid whatever percentage the plan pays, and the rest is discharged. The exception is a hardship discharge under § 1328(b), which does not reach § 523(a)(15) debts.
If my former spouse was ordered to pay a joint debt, can the creditor still come after me?
Yes. This is the most common misunderstanding I see, and it is a painful one to discover after the divorce is over. A Colorado divorce decree allocates debts between the spouses. It does not change the contract either of them signed with the lender. The credit card issuer, the auto lender and the mortgage servicer were not parties to the divorce and are not bound by it.
So if the decree assigns the joint Visa to your former spouse and he files bankruptcy, his personal liability to the bank is discharged, and the bank will turn to you for the full balance. Your remedy is the indemnification or hold harmless clause in the decree, which in his Chapter 7 is nondischargeable under § 523(a)(15), and in his Chapter 13 may be discharged.
This is why I encourage family law attorneys to ask, before a decree is final, whether either spouse is likely to file. If one is, it is usually better to pay off or refinance joint debt as part of the settlement, or to structure the allocation with that bankruptcy in mind, than to rely on a hold harmless clause.
Should we file bankruptcy before, during or after the divorce?
There is no default answer, but there are predictable tradeoffs.
| Timing | Advantages | Drawbacks |
|---|---|---|
| Before the divorce is filed | Spouses can file one joint case, with one filing fee and one trustee. Joint debt is discharged for both, so there is less debt left to divide. The divorce that follows is simpler and cheaper. | Requires cooperation and candor between spouses who may no longer trust each other. Both spouses' household income counts in the means test. Delays the start of the divorce by several months. |
| While the divorce is pending | The automatic stay halts collection, which can relieve pressure during settlement negotiations. Temporary support orders continue. Separation may help the filing spouse on the means test. | Property division is frozen until the bankruptcy concludes or the court grants relief from the stay. A Chapter 7 trustee controls the filing spouse's nonexempt property, which becomes a third party to the negotiation. Two courts and more legal fees. |
| After the decree is entered | Each former spouse files based on their own household and income. Property is already allocated, so the trustee sees a settled picture. Chapter 13 can discharge property settlement debts owed to the former spouse. | In Chapter 7, obligations to the former spouse under the decree survive. Joint debts the decree assigned to one spouse come back to the other if the assigned spouse files. Transfers made in the settlement may be reviewed by the trustee. |
Can we file a joint bankruptcy while we are getting divorced?
Yes, as long as you are still legally married. Under § 302 of the Bankruptcy Code, only spouses may file a joint case, and in Colorado you remain married until the court enters a decree, which cannot happen until at least 91 days after the court acquires jurisdiction over the case. A joint filing can be efficient when most of the debt is joint and both spouses qualify.
It also requires both spouses to sign the same schedules under penalty of perjury, to disclose all of their property and income, and to attend the meeting of creditors, usually called the 341 meeting. When I represent two spouses in a joint case, I explain the potential conflicts of interest and get their informed consent, and if their interests diverge sharply, separate counsel may be the right answer. A joint case can be separated later if needed.
How does the means test work when spouses are separated?
Separation can change the result, and it has to be reported accurately. The Chapter 7 means test compares household income over the six months before filing against the Colorado median for a household of the same size. A married debtor filing alone normally includes the nonfiling spouse's income. Official Form 122A-1 lets a married debtor leave out the spouse's income by declaring, under penalty of perjury, that the spouses are legally separated or are living apart for reasons that do not include evading the means test.
Household size is its own question. Courts do not all count household members the same way, and it matters who actually lives in the home and who is supported by it, especially when children split time between two homes. Court ordered maintenance and child support the debtor pays are deducted in the second part of the calculation, and support the debtor receives generally counts as income. I go through the details in the Colorado means test explained. For a higher earning spouse who does not qualify for Chapter 7, Chapter 13 for high income households is often the path.
What happens to the marital home?
It depends on equity, whose name is on the title and the mortgage, and who intends to keep it. Colorado is not a community property state. A Colorado divorce court divides marital property equitably under C.R.S. 14-10-113, and in bankruptcy, the filing spouse's interest in jointly owned property becomes part of the estate while the other spouse's interest does not. If the equity fits within the Colorado homestead exemption, the filing spouse's share is usually protected. The current figures are in Colorado bankruptcy exemptions.
A common pattern: the decree awards the house to one spouse, who is supposed to refinance but cannot. The departing spouse is still on the mortgage. If the departing spouse files Chapter 7, his personal liability on the note is discharged, but the lender's lien on the house remains, and the spouse living there still has to pay to keep it. If the spouse keeping the house is behind, a Chapter 13 can cure the arrears over the life of the plan.
What timing mistakes cause the most trouble?
The ones where property moves between spouses shortly before a bankruptcy. A Chapter 7 trustee can recover transfers made for less than reasonably equivalent value within two years before filing under § 548, and longer under Colorado's fraudulent transfer statute. A spouse is an insider under the Bankruptcy Code, so payments to a spouse on a debt within one year before filing can be recovered as preferences, although bona fide support payments are protected. A stipulated settlement that gives one spouse the house and the other the debt, signed a month before that spouse files Chapter 7, will get a close look.
The rule runs the other way too. Under § 541(a)(5)(B), property the filing spouse becomes entitled to through a property settlement or divorce decree within 180 days after filing becomes part of the bankruptcy estate. A client who files Chapter 7 in March and is awarded a share of a brokerage account in July may find that share in the trustee's hands. Retirement accounts divided by a qualified domestic relations order are generally treated differently, but they need to be planned, not assumed. I wrote separately about why cashing out retirement to pay debt is usually a mistake.
How should the bankruptcy and family law attorneys work together?
Early, before the settlement is drafted. The hardest outcomes I see, and the ones I most wish I could have prevented, come from a decree that was final before anyone asked whether either spouse would file. A short conversation can answer the questions that matter: which debts are joint, whether either spouse qualifies for Chapter 7, whether an obligation should be framed as support or as a property division and whether that framing is honest, and whether the timing of the decree or the filing should move.
I do not handle the divorce, and I do not second guess the family law attorney's strategy. My job is to tell everyone what the Bankruptcy Code will do with the deal they are about to sign. Every case turns on its facts, and a sequence that works for one family can be exactly wrong for another.
If you are the person going through the divorce, I know how much you are already carrying, and my team and I will make the bankruptcy side as clear as we can. Whether you are the client or a family law attorney or advisor with a client in this position, a paid Strategy Session with me is where we map the sequence against real numbers. More about the bankruptcy side is on my bankruptcy page, and how I work explains how the process runs, including coordination with other professionals.
