Divorce and bankruptcy sometimes go hand in hand
The financial strain of divorce can result in a bankruptcy filing or vice versa.
For some people, the financial strain caused by a divorce (paying lawyer’s fees, setting up two separate households, and having to pay child support or alimony, among other things) will eventually lead them to a point where a bankruptcy filing is necessary. For others, years of unmanageable debt leads to constant fighting and stress that ends their marriage, necessitating a divorce. If you are in the unenviable position of considering both divorce and bankruptcy, it can be helpful for you – and better for you in the end – to carefully consider whether filing for bankruptcy before or after your divorce will yield the best result for your unique personal and financial situation.
Bankruptcy before divorce
If you, as a couple, have many joint debts but a relatively low income, then filing a joint Chapter 7 bankruptcy before your divorce might be the way to go. Chapter 7 will discharge your unsecured debts, allowing you both to get a fresh financial start. The bankruptcy will need to be concluded before your divorce, but because a Chapter 7 is usually completed within a matter of months, it likely won’t significantly delay your divorce filing.
It is important to note that there were significant changes to the bankruptcy laws years ago that do make it harder for some people to qualify for Chapter 7 bankruptcy (you must now pass what is known as a “means test”) and you can only receive a Chapter 7 discharge every eight years. That being said, it is still available to many, and it is a very good option for quickly discharging unsecured debt like credit cards, medical bills and lines of credit.
Divorce first, then bankruptcy
If only one spouse has the majority of the couple’s debts, or if you don’t qualify for Chapter 7 bankruptcy protection, then it may be beneficial to conclude the divorce prior to filing for bankruptcy. Chapter 13 repayment plan bankruptcies typically take between three and five years to conclude, so unless you are willing to delay your divorce for that period of time, it might be better to divorce beforehand.
It is important to note that, if you do decide to divorce first and then file for bankruptcy, that joint debts – even those that were legally assigned to only one spouse as part of the divorce proceeding – are not completely wiped away if only one of the debtors files for bankruptcy. Let’s say, for example, that you are assigned to pay the entirety of a joint $10,000 credit card bill as part of the divorce decree, but you later file for bankruptcy seeking to discharge that debt and others. Your bankruptcy proceeding could indeed free you from responsibility for the debt, but the credit card company would legally be able to seek payment from your spouse under the terms of the original credit agreement.
When bankruptcy and divorce are both on the proverbial table, then it is important to look not only at the immediate results of filing, but also to look down the road to see the long-reaching impact. Working with a knowledgeable bankruptcy lawyer with experience helping clients in similar circumstances – like those at the law office of Nowack and Olson, PLLC – will help you determine the course of action that is best for your unique personal and financial situation. The firm has four South Florida locations (Fort Lauderdale, Miami, Boca Raton and Jupiter) to better serve you. Call them at 866-907-2970 or send an email today for more information.