Divorce is never easy, and when you throw bankruptcy into the mix, things can get complicated quickly. Both processes involve finances, and when they overlap, they affect one another—especially when it comes to dividing your assets. If you’re going through a divorce in Kentucky and facing bankruptcy, it’s important to understand how the two impact each other, particularly in terms of property division.
In this blog, we’ll break down how bankruptcy and divorce intersect under Kentucky law, and what you need to know when dealing with both at the same time.
Kentucky Divorce and Bankruptcy: A Complex Intersection
Divorce and bankruptcy are both major life events that often go hand-in-hand, especially if financial stress played a role in the breakdown of the marriage. But when they occur together, it’s crucial to know how one can affect the other.
In Kentucky, the court uses equitable distribution when dividing marital property during a divorce. This means assets are divided in a way that is fair, though not necessarily equal. But when bankruptcy is filed, the process for dividing assets and debts can shift significantly.
Let’s dive into how the timing and type of bankruptcy you file impact your divorce proceedings.
Timing is Key: When Should You File for Bankruptcy?
One of the first things to consider when both bankruptcy and divorce are on the horizon is when to file for bankruptcy. Filing before or after your divorce can make a big difference in how your assets and debts are handled.
Filing for Bankruptcy Before Divorce: Some couples in Kentucky opt to file for bankruptcy together before starting their divorce. This can simplify the divorce process by wiping out certain debts ahead of time, meaning there’s less to divide during the divorce. Filing for Chapter 7 bankruptcy can clear unsecured debts like credit card balances in a matter of months, though it will also temporarily halt the divorce proceedings due to the automatic stay issued by the bankruptcy court.
Filing for Bankruptcy After Divorce: If you wait until after the divorce is finalized to file for bankruptcy, the divorce court will have already divided the marital assets and debts. However, if you file for Chapter 13 bankruptcy (which allows you to reorganize your debts), you’ll likely still need to keep making payments on debts assigned to you in the divorce settlement. This means you and your ex-spouse may both be responsible for the marital share of the debts.
How Bankruptcy Affects Asset Division in Kentucky
Kentucky follows the principle of “equitable distribution” when it comes to dividing property in a divorce. But when one or both spouses file for bankruptcy, this process can be delayed or altered in several ways:
Automatic Stay on Asset Division: Once bankruptcy is filed, an automatic stay is issued by the bankruptcy court, halting any collection efforts and freezing the division of assets in the divorce. This means that, until the bankruptcy case is resolved, the family court in Kentucky cannot move forward with dividing the marital property.
Discharge of Marital Debts: Bankruptcy can discharge some marital debts, but certain obligations—like child support and alimony—are not dischargeable. In Chapter 7 bankruptcy, unsecured debts like credit cards can be eliminated, which can change the way marital debts are handled during the divorce. However, secured debts (like mortgages or car loans) may still be in play.
Exempt and Non-Exempt Assets: Kentucky law allows certain assets to be exempt during bankruptcy, meaning they can’t be used to repay creditors. Exempt assets can include things like your primary home, certain personal property, and retirement accounts. Non-exempt assets, on the other hand, can be liquidated to pay off debts. The division of non-exempt assets could leave less property to be divided in the divorce.
Debts Assigned in Divorce: In some cases, one spouse may be assigned more of the marital debt in the divorce settlement. However, if the spouse responsible for the debt files for bankruptcy afterward, creditors may still pursue the other spouse for repayment, regardless of the divorce decree. This can lead to unexpected financial strain.
Key Considerations When Facing Both Bankruptcy and Divorce
- Work with Both a Family Law and Bankruptcy Attorney: Dealing with divorce and bankruptcy at the same time requires careful legal navigation. In Kentucky, it’s a good idea to have both a family law attorney and a bankruptcy attorney on your team to ensure your financial interests are protected in both cases.
- Evaluate Your Debts: Before filing for either divorce or bankruptcy, take the time to list and understand all of your debts. If possible, try to resolve unsecured debts before the divorce through a bankruptcy filing. This can simplify the process and help both parties move forward without lingering debt.
- Prepare for Delays: Filing for bankruptcy, especially Chapter 7, will put an automatic hold on your divorce proceedings while the bankruptcy case plays out. This may delay the division of assets, so be prepared for a longer timeline if you’re filing for both bankruptcy and divorce.
Final Thoughts: Navigating Both Bankruptcy and Divorce in Kentucky
Facing both divorce and bankruptcy at the same time is never easy. In Kentucky, the timing of your bankruptcy filing, the types of debts you have, and the assets involved will all play a critical role in how your divorce is handled. While bankruptcy can offer a financial reset, it complicates asset division and debt responsibility, so it’s important to work with experienced attorneys who understand both processes.
At Velez Law, PLLC, we’re here to help you navigate the complexities of divorce, ensuring that your rights and interests are protected every step of the way. If you’re going through these difficult legal challenges, reach out to us for guidance and personalized advice. We will encourage you to speak with a bankruptcy attorney if you are thinking about bankruptcy. Let us help you find the best path forward.
***for advertising purposes only, this is not legal advice.
Who We Are: Your Attorneys
Taniesa Velez
Founder and Principal Attorney of Velez Law, PLLC
Taniesa leads the firm with a deep commitment to advocating for clients in family law cases, including divorce, custody, and domestic violence. Her client-centered approach ensures tailored strategies for every case, making her a trusted advisor in even the most challenging legal matters.Kelsea Hall
Executive Associate Attorney at Velez Law, PLLC
Kelsea handles a wide range of family law matters, including dissolution, child custody, support issues, and post-decree modifications. She is highly skilled at providing clear guidance and solutions, empowering clients to move forward confidently during difficult times.