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How Divorce Settlements are Affected by Bankruptcy

two hands holding a stack of money

Determining what property is part of your estate, and determining which of that property is exempt or non-exempt, can be one of the most complex aspects of a bankruptcy filing. While your estate is normally limited to the property you own when you file, there are certain cases where property you acquire after filing might be included in your estate as well. This can create serious problems if not planned for in advance with the help of an attorney. Read on to learn more, and speak with a skilled bankruptcy lawyer with any questions.

When you file for bankruptcy, the bankruptcy court will require you to declare all property you own to the court. When filing for bankruptcy under Chapter 7, the bankruptcy trustee has the right to liquidate your property to pay back your creditors unless that property is covered by an exemption. Many bankruptcy petitioners are able to use exemptions to cover all of their property, leaving nothing for the trustee to liquidate and allowing the petitioner to retain all their most important assets.

Receiving certain property within six months of filing for bankruptcy can throw a wrench into your carefully-used exemptions. For the most part, property you receive after filing for bankruptcy won’t be counted as part of your estate, but there are certain forms of property that are retroactively included in your bankruptcy estate, such as divorce settlements. If your divorce becomes final within 180 days of filing for bankruptcy, property you’re awarded in a settlement will become part of your estate even if your bankruptcy was already closed. For example, if you’re awarded half of the sale price of the marital home in a divorce settlement, and the date that your divorce was final was within six months of when you filed for bankruptcy, your bankruptcy estate will include that money. It doesn’t matter when you receive the money or assets, only when you become legally entitled to it.

With careful planning and negotiation, you may be able to avoid losing property received in a divorce settlement in bankruptcy. For example, alimony and child support are considered exempt from seizure by a bankruptcy trustee. If your share of the division of property in a split is awarded to you in the form of alimony, you won’t stand to lose it. Also, your attorney may be able to help you time your divorce or bankruptcy filing so that they don’t intersect in this way.

If you need help overcoming mounting credit card or medical debt in Southern California, seek help from trusted and experienced bankruptcy attorneys by contacting the Ventura bankruptcy lawyers at Rounds & Sutter for a consultation, at 805-650-7100.