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Why Your Ex's Bankruptcy May Be A Good Thing

Published July 16, 2011 by Sasser Law Firm

Patricia Kluge has assets that she values at $2.6 million dollars. We know this because she filed bankruptcy last week. We also know that she has debts of $47.5 million, which certainly puts the grey velvet chaise lounge and engraved Belgian shotguns ($800 and $4,000, respectively) in some perspective. Bankruptcy documents aren’t usually quite so interesting to the casual observer and there usually isn’t a lot an outside observer can say to dispute what a debtor discloses. After all, who am I to say what Ms. Kluge’s shotgun is worth? But what if the bankruptcy documents you’re looking at aren’t those of a stranger, but are those of a former spouse? What if there’s something missing? What if there are lots of things missing? We get those calls from time to time. A woman calls the office with bankruptcy documents in hand and has the real inside scoop on her ex-husband’s assets. She knows about the sailboat, the second house in White Lake, the coin collection, the brokerage account – all those things that a trustee in a bankruptcy case might be able to liquidate to pay his debts but that he didn’t disclose. That woman has two options: she can raise an all-mighty fuss and get her ex-husband in serious trouble with the bankruptcy court, or she can stay quiet. If an ex-spouse is owed domestic support obligations, it is often in her best interest to keep mum about an ex-spouse’s hidden assets. His bankruptcy (especially if he has filed a chapter 7) helps her. Domestic support obligations are considered priority claims in the bankruptcy scheme and receive special treatment. The woman in our example is a co-belligerent with her ex-husband. Outside of the bankruptcy context, every credit card debt, every store account at Home Depot, every unpaid loan to his cousin Eddy, competes on equal footing with her for her husband’s limited money. His bankruptcy frees up more money for him to pay her. If an ex-wife is simply owed a marital claim that is not in the nature of support and her ex-husband files a chapter 13, his bankruptcy no longer benefits her and his case could result in a discharge of his obligation to her. In those situations, the ex-wife should read those schedules with a magnifying lens looking for missing assets and mis-statements that could improve her position.

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