Navigating the Legal Crossroads
Divorce and bankruptcy are two situations that no one wants to find themselves in simultaneously, especially amid a divorce. The legal and financial implications can be even more complicated when a marriage is dissolving. For spouses in Oakland County and the surrounding Metro Detroit area, understanding how these two legal processes intersect is crucial for achieving long-term financial security.
The Michigan Legal Landscape: What You Need to Know
In Michigan, divorces are handled in state circuit courts, and bankruptcies are handled in federal bankruptcy courts. Regardless, the outcomes can have a direct impact on one another. For example, a bankruptcy filing in the U.S. Bankruptcy Court for the Eastern District of Michigan, which covers Oakland County, can significantly affect the division of property and debt obligations in a pending divorce proceeding in Oakland County Circuit Court’s family division.
Key Considerations for Oakland County Residents
1. Impact of Bankruptcy on Divorce Settlements
Suppose either spouse files for bankruptcy before or during the divorce. In that case, the automatic stay imposed by the bankruptcy court may temporarily halt property division until the bankruptcy case is resolved or until the federal bankruptcy judge allows the property division to occur.
Once the bankruptcy is resolved, the family court must determine whether one spouse is left with a larger share of the marital debt and proceed with the equitable distribution analysis of assets and debts under MCL 552.401 and the Sparks factors. Sparks v. Sparks, 440 Mich. 141 (1992).
2. Debt Management and Dischargeability
During a bankruptcy, unsecured debts, such as credit card debt, personal loans, and certain medical bills, are typically dischargeable, depending on whether the debtor is in a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. Monetary obligations such as child support and spousal support related to a divorce proceeding, such as spousal support and child support, are non-dischargeable under 11 U.S.C. § 523(a)(5).
If you’re paying or receiving spousal or child support in Oakland County, know that bankruptcy cannot change these obligations.
3. Protecting Assets from Creditors
Michigan bankruptcy exemptions, such as those for a home, personal vehicle, household goods, and qualified retirement accounts, can be used to shield certain assets from liquidation in a Chapter 7 bankruptcy. This is especially important in high-asset divorces, where real estate equity or retirement assets may be substantial.
Strategic planning with both a divorce and bankruptcy attorney is essential to protect your assets in both situations. It is wise to hire a divorce attorney who works well with a bankruptcy attorney to strategize for the best possible outcome in a difficult financial situation.
4. Timing Matters
Sometimes, filing for bankruptcy first can simplify debt division, especially if both parties file jointly and can discharge shared debt. However, other times it may be better to file for divorce first. For example, when only one spouse is burdened with debt or when you are trying to protect assets that would not qualify for an exemption. Consulting with a divorce attorney working in conjunction with your bankruptcy lawyer can help you assess which order of filing is best under your specific circumstances.
Conclusion: Work with Local Legal Professionals
Navigating a divorce or bankruptcy is hard enough. Navigating both at once requires experienced legal guidance. If you find yourself in a similar situation in Oakland County, Livingston County, or Metro Detroit, consider hiring attorneys who are familiar with the intersection of divorce and bankruptcy, as well as local practices in the Oakland County Circuit Court and the U.S. Bankruptcy Court.
At The Kronzek Firm, our attorneys have decades of experience guiding clients through the unique financial and legal challenges of simultaneous divorce and bankruptcy cases in Troy, Novi, Royal Oak, Ferndale, Huntington Woods, and beyond. We understand what is at risk and are dedicated to protecting your rights and your financial future.
📞 Our highly ranked attorneys have assisted thousands of Michigan clients for over 30 years. You can reach our Farmington Hills office 24/7 by calling (248) 479-6200.
[Disclaimer: This content is for informational purposes only and does not constitute legal advice. Consult an attorney for personalized guidance.]