Important Things to Know About Divorce and Bankruptcy

Divorce can be more draining on your emotions as well as the quality of your life than you might have imagined. When divorce is combined with bankruptcy, this often means that the process is much more stressful. These two difficult life periods, however, have a unique relationship with one another. Divorce is often viewed as one of the leading causes of why many people file for bankruptcy. If you are debating navigating the bankruptcy process at the same time as a divorce, there are some important things that you should consider.

Whenever Possible Avoid Overlapping Bankruptcy and Divorce

If it is all possible, you should avoid navigating both divorce and bankruptcy at the same time. In most cases, people decide to pursue bankruptcy before a divorce. There are several reasons why this order is advantageous. By filing for bankruptcy before divorce, all of your debts will be addressed in the bankruptcy case. This means that you will be able to erase many of your joint debts together and increase some exemption amounts. This can also be advantageous if one spouse is the primary financial earner because this will increase the higher-earning spouse’s chances of qualifying for Chapter 7. If a couple qualifies for Chapter 7, this process will likely conclude in approximately 90 days. After the bankruptcy process is completed, the divorce will proceed without further interruption. Filing for divorce first, however, makes sense if your joint income is too high to qualify for Chapter 7 bankruptcy. Adequate planning during a divorce can also allow you to transfer certain assets outside of creditor’s reach. Lastly, divorcing first allows for divorce considerations. 

Determine When Filing for Bankruptcy is Best for You

There are several important factors to consider when deciding whether to file for bankruptcy before or after a divorce. Consider the following:

• Type of bankruptcy. One of the biggest factors that influence when to file bankruptcy is the type of bankruptcy that you want to pursue. If you have decided to file for Chapter 7 bankruptcy, filing before your divorce might be the best option. This is because Chapter 7 bankruptcy can be completed within several months. If you decide to pursue Chapter 13 bankruptcy, however, it might be a good idea to do so after a divorce because this type of bankruptcy often lasts for several years. If you divorce while the bankruptcy is ongoing, you will likely need to either have the bankruptcy case separated or closed. 

• Income levels. Your income level is another important factor that should consider when deciding whether to file for bankruptcy before or after divorce. If you and your spouse file a joint bankruptcy, you will be able to save on numerous costs including filing fees and the costs of retaining an attorney. Because courts will analyze both you and your spouse’s income levels when determining bankruptcy qualification, filing for bankruptcy before your divorce could mean that your income level is viewed as too high for Chapter 7 bankruptcy. In these situations, it is often best to pursue Chapter 7 bankruptcy after a divorce is granted.

• Assets. Before beginning the bankruptcy process, it is a wise idea to speak with a bankruptcy lawyer who can help you determine what assets will be protected if you file for bankruptcy. It can also be beneficial to navigate the bankruptcy process before divorce if a couple has numerous assets. This way rather than spend a substantial amount of money during divorce hearings to determine how assets should be divided, a bankruptcy court can resolve these issues for you in advance. 

• Relationship status. If you are still on good terms with your spouse, it might be a better idea to file for bankruptcy before divorce. Attempting to file bankruptcy with a spouse who is averse to your financial interests, however, could lead to more obstacles than benefits. You will need to depend on your spouse to provide all of the necessary financial documentation that the bankruptcy process requires. You should also be certain that your soon to be former spouse is prepared to work with you and your lawyer. 

Deciding Whether to File First Depends on Your Situation

While you likely understand that you should not file for bankruptcy and divorce at the same time, you can still select which process you would like to resolve first. In deciding which order is best, there are various factors to consider. If you are still on good terms with your spouse, it might be best to navigate bankruptcy first. This allows you to share the cost of a lawyer as well as filing fees with your spouse. In a few situations, it is also possible for spouses to double their bankruptcy exemptions. Another advantage of filing for bankruptcy is also the simplification of the division of assets in divorce because these assets are typically divided during bankruptcy first. 

Not All Debts are Included in Bankruptcy

Many people overlook the fact that bankruptcy is not capable of discharging all of the various debts that a person accrues. Debts that are categorized as “nondischargeable” cannot be forgiven through the bankruptcy process and a person will still be responsible for paying these amounts. Some of the most common types of nondischargeable debts include alimony, child support, court fines, fines owed to government entities, and student loans. In addition to nondischargeable debts, there are also ways that some debts can be blocked from discharge. For example, some debts can be made nondischargeable if a person destroys financial records, fails to provide requested tax documents, hides assets with the intent of defrauding creditors, or violates court orders.

Bankruptcy Does Not Eliminate Certain Divorce Debts

Based on your particular situation, you might be issued a divorce decree requiring you to make routine payments to your spouse in exchange for physical property. You might even be issued a divorce decree requiring you to make regular payments to your spouse. Chapter 7 will not allow a person to discharge these types of debts. If you anticipate being required to pay these amounts, Chapter 13 is often a much better option because it will allow kind of property to be included in your payment plan. 

If You Overlap Bankruptcy and Divorce, You Might Need a New Lawyer

If you and your spouse hired a divorce lawyer, you might be required to find a new one. This is because if you file for bankruptcy during a divorce proceeding, a divorce lawyer will not be able to represent you. This is as a result of the fact that lawyers are prohibited from representing clients who have conflicting interests. If you do decide to overlap bankruptcy and divorce, you should also anticipate a longer personal bankruptcy process. This is because divorce courts can make rulings on a number of different issues that are directly related to your finances including alimony, child custody, and child support. 

Be Aware of Bankruptcy Concerns After Divorce

If you and your former spouse accumulated a substantial amount of credit card debt while married, these amounts will not be forgiven simply because the marriage has ended. If your divorce left you with unmanageable debt, however, bankruptcy is often one of the best options to begin taking control of your financial difficulties. Filing for bankruptcy will impact your credit score, but because you are no longer married, it will have no impact on your former spouse’s credit history. This does not mean, however, that after a divorce, the other spouse will be entirely excused from their debt obligations. Instead, both you and your spouse will likely be found equally responsible for the resulting debt. 

Follow Some Important Divorce Advice

No matter if you file for bankruptcy before or after a divorce, it can help to follow some helpful strategies, which include:

• Create a plan for how you will manage your finances on one salary after your bankruptcy. This might mean meeting with a financial professional to determine what steps you must take to maintain your lifestyle. One of the biggest challenges for many stay at home parents after a divorce is that they often have a difficult time finding employment of this nature. 
• Make sure that all of your creditors agree with any financial changes that you intend to make after bankruptcy. You should avoid the trap that many debtors fall into and not altering your spending habits. 
• Retain the assistance of an experienced bankruptcy lawyer who has experienced navigating bankruptcy cases involving divorce. While discussing your plans with your lawyer, make sure to share all of the relevant details about your divorce that could impact your bankruptcy. 

Speak With an Experienced Bankruptcy Lawyer

Divorce and bankruptcy provide you with a fresh start to take control of your future. By understanding some critical details about the relationship between these two, you can make an informed decision and come out stronger than ever before. If you need assistance navigating the bankruptcy process, you should not hesitate to contact attorney Melanie Tavare today.