Are you considering filing for divorce? Have you already obtained a divorce? When it comes to bankruptcy and divorce, you may wonder how your ex-spouse will affect your ability to file for bankruptcy and your legal options. Divorce can be stressful and create new financial landscapes, but a professional consultation with an experienced bankruptcy lawyer can help.
If you’re heading towards divorce, in divorce proceedings, or recently divorced, you should consult an experienced bankruptcy attorney to discuss your options. Our experienced lawyers at Bradford Law Offices can help you determine how your divorce and shared financial situation with your ex-spouse may impact the course and outcome of your bankruptcy case.
Filing for Bankruptcy Before Divorce
Filing for bankruptcy before you and your spouse formally file for divorce may provide some benefits. First, if both you and your soon-to-be ex-spouse plan on filing for bankruptcy, you can save costs by filing together as a married couple. Resolving your marital debts in bankruptcy can also simplify property division in your divorce. You will not need to divide debts discharged in your bankruptcy.
However, if you do not obtain a discharge of certain debts that the court orders your spouse to pay, as part of their divorce judgment to pay off debt, the creditor can still pursue the collection of those debts from you both. In this instance, the creditor is not subject to the divorce judgment. You may need a divorce court to enforce your ex-spouse’s obligations to pay under your marital settlement agreement or divorce judgment.
It’s also important to consider how a divorce may impact your bankruptcy options, specifically when choosing between Chapter 13 and Chapter 7 bankruptcy. When it comes to divorce, the key differences are:
- Chapter 7 bankruptcy can include asset liquidation, while Chapter 13 involves reorganization and payment plans.
- Chapter 7 bankruptcy involves median-income eligibility and “means testing” to ensure the applicant’s needs for bankruptcy.
- Chapter 13 creates lengthy repayment plans until the debt is resolved.
For example, if you choose to file for Chapter 13 bankruptcy or do not financially qualify for Chapter 7 bankruptcy, you’ll need to enter a repayment plan. These plans can last three to five years, which financially connects you to your ex-spouse following your divorce. This arrangement can prove difficult if you and your ex-spouse have an acrimonious relationship.
Pursuing Bankruptcy and Divorce at the Same Time
Filing for both bankruptcy and divorce at the same time is usually not advised. Both cases can affect the other, leading to delays in both the divorce and bankruptcy process. For example, when you file for bankruptcy, your assets may become part of the bankruptcy estate. This means that the court in your divorce action cannot undertake equitable distribution of your and your spouse’s property until you resolve the bankruptcy.
Therefore, if you and/or your spouse have already filed for divorce, you should wait to file for bankruptcy until your divorce is finalized. Conversely, if you have already filed for bankruptcy, you should complete the bankruptcy process before pursuing the divorce.
Seeking Bankruptcy Following Your Divorce
If you finalize your divorce before filing for bankruptcy, you should remember that you can no longer file a joint bankruptcy petition with your ex-spouse. Each of you will need to bear your own costs if you both file for bankruptcy. However, splitting up your finances may now qualify you to file for Chapter 7 bankruptcy and avoid the repayment plan with your ex-spouse, as mentioned earlier.
But filing for bankruptcy after your divorce can also create problems. For example, suppose you and your ex-spouse are made jointly liable for debts under your divorce judgment, and your ex-spouse subsequently obtains a discharge in bankruptcy. In that case, the creditor can no longer pursue collections against your ex-spouse but can still seek to recover the entire debt from you.
Conversely, let’s say you obtain a discharge of debts that you and your ex-spouse are made jointly responsible for in your divorce. The creditor may not undertake collection efforts against you, but your ex-spouse may still be entitled to enforce the divorce judgment. Your ex-spouse may even be entitled to intervene in your bankruptcy case. They may request that the bankruptcy court not discharge any obligations under your marital settlement agreement or divorce judgment.
In addition, if you have alimony or child support obligations or arrears, you cannot seek a stay of your obligations or a discharge of those debts in bankruptcy. But you may be entitled to incorporate your alimony or child support obligations or debts in your repayment plan in a Chapter 13 bankruptcy.
If you’re considering filing for bankruptcy but want to know how divorce may affect the process, the knowledgeable lawyers at Bradford Law Offices can help you make a financially wise decision. Call us today at (919) 758-8879 for a confidential consultation.