Does a Bankruptcy Affect My Prior Divorce Settlement?

Many Illinois couples are faced with crippling personal debts and make the difficult decision to file for bankruptcy. Unfortunately, bankruptcy does not eliminate all debts. For example, federal law does not allow a bankruptcy court to discharge any debt incurred as the result of a “domestic support obligation,” such as child support or spousal maintenance. This means that if you and your current spouse seek bankruptcy protection, you may still need to deal with the consequences of a prior divorce.

Court Allows Husband to Continue Paying for Children’s College Education

The interaction of federal bankruptcy law and Illinois state laws governing divorce can get complicated. Here is an illustration from an ongoing bankruptcy case pending before a federal court in Chicago. The case involves a married couple of which the husband has two adult children from a prior marriage.

The couple has filed for Chapter 7 bankruptcy protection. In a Chapter 7 case, the court appoints a trustee to take charge of the debtors’ assets (that are not otherwise exempt from bankruptcy or creditor judgments). The trustee is responsible for paying creditors from any available assets of the bankruptcy estate. In some cases, the trustee may ask the court to dismiss a case if it does not qualify for Chapter 7.

That is what happened in this case. The trustee asked the judge to convert the debtors’ case to a Chapter 11 (reorganization) bankruptcy for a number of reasons. One issue cited by the trustee was the debtor husband’s obligation to pay $2,000 per month for the college expenses of his two adult children. The trustee argued these expenses were not reasonable since the children were no longer minors and that $2,000 per month could be used to pay off the couple’s creditors instead.

The bankruptcy judge disagreed as to this particular issue. Under the terms of the husband’s divorce settlement with his prior spouse, he is legally responsible for 75 percent of all “reasonable educational” expenses for his “minor children.” The use of “minor” in this context referred to the ages of the children at the time of the divorce, the bankruptcy court noted, not their current age. Illinois law “specifically authorizes” a court to “order payment of educational expenses” for the benefit of an adult child, and therefore the $2,000 per month payments constitute a “domestic support obligation” under federal bankruptcy law.

Get Help Understanding Divorce and Bankruptcy

Dealing with a divorce is difficult enough. When divorce interacts with bankruptcy, the difficulty can increase exponentially. Of course, the cirumstances in every case are different, but we can help. Whether you are concerned about the impact of a prior divorce on your bankruptcy, or the consequences of filing for bankruptcy in the middle of a pending divorce, you need experienced legal help. Contact our offices to speak with a qualified DuPage County family law attorney right away.