Chapter 7 And Divorce
When you file for Chapter 7 bankruptcy, the court liquidates all of your non-exempt assets. It uses those funds to pay off as much of your debt as possible and then discharges all remaining eligible debts. This leaves filers with a minimum of both debts and assets.
This can be ideal for couples seeking a simplified divorce and a clean slate. It enables both spouses to leave most or all of their debt behind. There will be little divided in the divorce and, while each spouse may start over with very little, they do so unencumbered.
When filing under Chapter 7, it is almost always best to file bankruptcy before divorcing if possible.
Chapter 13 And Divorce
Chapter 13 bankruptcy is different from Chapter 7 in that filers keep most of their assets. They must prove to the court their monthly income and expenses and then work with a court-appointed trustee to create a five-year repayment plan for their debts.
This is difficult or impossible to do before a planned divorce as filers cannot accurately demonstrate their income or expenses since these will be heavily impacted by the results of the divorce agreement. Repayment plans can also complicate divorce proceedings since assets will be divided by the divorce court. They will not necessarily be divided in ways that align with the repayment plan, making it difficult to evenly allocate debt and assets in the divorce.
As such, if either spouse feels capable of managing a Chapter 13 repayment plan and wants to keep most of their assets, they should file for divorce first and then apply for bankruptcy once that settlement is finalized.
Filing For Bankruptcy First
For couples parting on amicable terms, filing for bankruptcy first can be the smart choice. Filing jointly for bankruptcy while still married:
- Can save you money
- Simplifies divorce proceedings when you get to them
- May offer larger exemptions and broader protections from debt
Under laws about a couples bankruptcy filing, married spouses filing together can sometimes claim up to double the exemptions they would be allowed if filing alone. This can enable couples and each individual within the couple to protect more assets in the long run than they could if they divorced first and filed alone. At the same time, couples can share the cost of a bankruptcy attorney which saves money as well.
Liquidating assets during bankruptcy leaves fewer assets to divide up during a divorce. This can speed up and reduce the cost of divorce proceedings.
That said, filing for bankruptcy first may not be the best choice for every couple.
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Filing For Bankruptcy During A Divorce
A divorce is an emotionally draining period for all parties involved, even when both spouses agree to end their marriage. One of the most contentious subjects of divorce settlements is the division of debt. Depending upon the amount of debt, you or your spouse may be considering filing for bankruptcy during a divorce. If this is the case, it is crucial to speak with an experienced family lawyer at OConnor Family Law to obtain guidance on these matters and discuss how filing for bankruptcy could affect your divorce proceedings.
Bankruptcy And Divorce My Ex
If your ex-spouse has gone bankrupt you will be responsible for all of the joint debts in full.
If you are unable to afford these new financial responsibilities you will be required to file a consumer proposal or go bankrupt.
It is not uncommon for both spouses to have to file insolvency through a bankruptcy or debt proposal to deal with debts that accrued during marriage.
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Is It Wise To File For Bankruptcy Before Getting Divorced
Before putting divorce and bankruptcy into motion, you should understand that it’s unlikely the two proceedings can truly take place simultaneously. You can file legal motions at the same time, but in most jurisdictions one case will take precedence over the other. If both cases are pending simultaneously, bankruptcy is typically suspended until the divorce court apportions marital debts and assets to each party.
Juggling the two legal actions will only complicate your situation, so for simplicity’s sake, you may want to consider filing for divorce before tackling bankruptcy. Certain circumstances, however, can make it more desirable to file bankruptcy first, and then address divorce.
How Does My Spouse Filing Bankruptcy Affect My Credit
Your credit should not be damaged by your spouses bankruptcy filing. However, if jointly held debt is discharged in your spouses bankruptcy and creditors come after you, failing to pay can put a stain on your credit report and cause your score to drop. If you receive an inaccurate adverse rating on your credit score as a result of your spouses bankruptcy, contact a Dallas debt relief lawyer right away. They can advise you on how to address the matter with credit reporting agencies and have it removed from your credit report.
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When Does It Make Sense To File For Bankruptcy Before Divorce
A main advantage to filing bankruptcy before divorce is the potential for cancelling joint that would otherwise have to be divided up as part of divorce proceedings, and then tackled separately in each spouse’s bankruptcy. A joint bankruptcy filing requires cooperation between the spouses, but it can significantly streamline the divorce process, reducing legal fees and time commitment for both parties.
In many states, a couple filing for bankruptcy can keep a larger portion of their assets than they would when filing for bankruptcy individually, after a divorce.
Can You File For Bankruptcy During Divorce
Technically, yes, but there are reasons to file for bankruptcy either before, during or after a divorce, says Patrick J. Best, a bankruptcy attorney with ARM Lawyers in Pennslyvania. Best says:
- Sometimes, filing bankruptcy before a divorce can be best. If the couple has quite a bit of debt, divorce can become a fight about who is going to pay the debt back. Filing bankruptcy before the divorce allows the debt to be discharged so that the couple does not need to worry about dividing debt.
- Filing a bankruptcy during a divorce can have a similar effect. If during the divorce you find that you are simply arguing over debt, a bankruptcy can help resolve that issue.
- Depending on how the divorce was resolved, you may wish to file bankruptcy after the divorce is concluded. Sometimes debts owed to your ex-spouse may be discharged in Chapter 13 bankruptcy. That means that in addition to no longer owing your consumer debt, you would no longer owe money to your ex-spouse.
Benefits of filing before your divorce :
- You may save on attorney and filing fees by using the same bankruptcy lawyer as your husband or wife
- You may qualify for more exceptions in the bankruptcy if you are married
- The divorce proceedings can be simpler if you have discharged debts
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How Much Is A Divorce
The cost of a divorce can range from under $500 for a DIY filing, into the tens of thousands of dollars. Typically, the more money you and your soon-to-be spouse have, the more a divorce can cost and the greater chance of going into bankruptcy. Get a general idea of the cost by contacting local divorce or family law attorneys through free or discounted initial consultations.
Online, DIY divorces services like Rocket Lawyer, LegalZoom, Avvo and Justia provide free legal information searchable by state. Check with the school of law at your local college or university. Some offer free legal clinics to the public.
If your breakup is more or less amicable, with few assets and a general agreement about how time sharing with any children will be established, do-it-yourself online divorce services can be a great option. This is an option for uncontested divorces where both parties agree on major decisions about child custody, spousal support and how assets are divided
If youre going DIY, you will need to:
3StepDivorce is another great option that provides you with all the legal documents, online storage, and instructions for filing in your state. A+ Better Business Bureau rating and a money-back guarantee your papers will be accepted by your local courthouse.
How Does Divorce Impact Bankruptcy & Joint Debts
If your marriage has dissolved through divorce or a separation the agreement that dissolves your partnership does not legally separate the responsibility for jointly held debts.
In order for your joint debt responsibility you need to have a new agreement drawn up, which requires your creditors cooperation, which is not always possible, and the assistance of a lawyer.
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Assuming That One Party Filing Bankruptcy Wipes Out Debt
Many people misunderstand the impact of a divorce decree on financial obligations. In short, although the divorce court enters orders requiring that the husband be responsible for the outstanding balance on the Visa card and the wife the balance on a personal loan, those orders dont affect the original creditors rights. The credit card company isnt a party in your divorce case, and the divorce court has no authority to undo your contract with the creditor. So, even though the divorce court order says husband pays the Visa bill, the credit card company can still pursue payment from the wife–even file a lawsuit against her.
Bankruptcy of one party doesnt change that, if both spouses were obligated on the debt. So, generally, if the husband files bankruptcy alone–before or after the divorce–the credit card company wont be able to pursue him directly to collect that unpaid credit card balance. But, they will likely still be able to pursue payment from the wife. And, depending on the terms of the divorce decree, she may in turn be able to pursue reimbursement and other costs from the husband.
In short, its best for everyone to have a clear understanding of how bankruptcy will play out before taking the next step.
Should You Pay Your Bills Before You File Bankruptcy
Your financial situation has become untenable, and youve decided to file bankruptcy. Should you keep paying bills that you hope to discharge anyway? It depends on what kind of debt the account is.
It may be all right to stop paying certain kinds of unsecured debt before bankruptcy, such as:
- Payday loans
- Lines of credit
Since these debts will be discharged, you may be better off saving the money to repay obligations that cant be discharged. These include secured debts, where the creditor can repossess the asset if you fail to keep up with payments or obligations like spousal and child support.
Its important to remember that bankruptcy is for honest debtors who find themselves unable to repay their creditors. If there is evidence that you took advantage of the system, such as borrowing large sums immediately before filing, you may not be able to file bankruptcy or discharge those particular loans. Even preferential repayments, where you repay personal loans from friends or family while ignoring other creditors, can be an issue. Preferential payments may even be undone in the bankruptcy process.
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Filing For Bankruptcy At The Wrong Time
The more common mistake with regard to timing occurs when one party wants to file bankruptcy, but decides to postpone until after the divorce is final. While filing pre-divorce isnt the right move for everyone, it can often save both time and money–particularly when the parties have significant joint, unsecured debt and are eligible for Chapter 7. A married couple may also be able to protect more property through bankruptcy exemptions than one or the other filing separately could. In other situations, though, holding off may make sense. For example, a Chapter 13 case involves payments spanning three to five years, so commencing a case with divorce on the horizon will rarely be the right move.
The best approach to bankruptcy when divorce is in the mix depends on a wide range of factors, and should be discussed with both your divorce attorney a qualified local bankruptcy attorney before you make any decisions. Regardless of whether or when you and your spouse decide to file for bankruptcy protection, having a clear plan will help in negotiating other aspects of your divorce case, such as spousal maintenance and division of debts and assets. And, a clearer understanding of your ongoing financial obligations will help you make good decisions about things like your living arrangements after divorce.
Filing For Bankruptcy Protection
Most individuals have the option of Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy is wider-reaching, simpler, and offers broader protection for most individuals who qualify. It can offer total forgiveness for most debts, with some exceptions . Chapter 13 bankruptcy is a longer process but may be preferable for individuals, depending on their financial situation. Talk to your attorney about filing for bankruptcy, your options, and how the bankruptcy may affect your divorce.
Whether to file for bankruptcy before, during, or after a divorce may depend on your debts. Debts, like assets, can generally be classified as joint or separate. Joint debts include debts accrued during the marriage, such as a home mortgage, joint credit card accounts, child-related expenses, and joint loans. Individual debts may include debts accrued before the marriage, such as student loans.
If the couple has significant joint debts, they may consider a joint bankruptcy filing. This could help protect larger joint assets, like a home with a mortgage under both spouses. If the couple divorces and only one spouse gets the house, the equity may be too much for a single bankruptcy filing and it may not be protected.
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Why Is Divorce So Often Cited As A Reason For Bankruptcy
Again, after divorce, many people find their finances stretched. Some have to pay alimony, others find they’re paying for new expenses such as child care, and most will find their expenses increased because they’re no longer splitting bills with their now-ex.
Some people are pushed into bankruptcy by their former spouse. Lets say they owned a house together but they either dont want to sell it or they cant sell it because its upside down. One of them agrees to pay the mortgage it might be the spouse who lives there, or it might be the ex who is supporting him or her. But the mortgage doesnt get paid. Maybe that spouse eventually files for bankruptcy, and the other one ends up having to file in order to keep the house and catch up on payments, or to discharge their responsibility for the remaining loan.
What Happens To Joint Unsecured Debts In A Bankruptcy Case
If you and your ex-spouse owed joint debts, those debts are included in your bankruptcy case. Your ex-spouse receives notice of the bankruptcy filing as a joint debtor.
In a Chapter 7 case, most unsecured debts are discharged. Examples of unsecured debts you can get rid of in Chapter 7 include medical bills, credit cards, personal loans, some old tax debts, most personal judgments, and old utility or rent payments.
In a Chapter 13 bankruptcy case, unsecured creditors are paid a portion of the debt you owe. The percentage paid to unsecured creditors depends on several factors, including your income, expenses, and debts. When you complete the Chapter 13 case, the remaining amounts owed to unsecured creditors are discharged.
Your bankruptcy filing does not discharge your ex-spouses legal liability for an unsecured debt. If your ex-spouse were a co-debtor, the creditor could sue your ex-spouse to collect the remaining portion of the debt.
If your divorce decree states that you are responsible for paying certain debts, that order could impact your bankruptcy filing. A bankruptcy filing does not negate a family court judges order. You might be legally released from repaying the debt to the creditor after filing bankruptcy, but you might still be liable for the debt through the divorce.
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Automatic Stay And Property Division
When you file for bankruptcy, you are taking steps to protect yourself from collectors, lawsuits, garnishments, seizures of property and so on Depending on what chapter you file on, either Chapter 7 or Chapter 13, Will determine as to what happens to your property Most of the time, if done correctly and according to the bankruptcy laws, you can protect most, If not, all your properties Filing for bankruptcy has an Immediate Impact Bankruptcy Will trigger an automatic stay, in other words, all collection matters and lawsuits are frozen and your protection goes Into effect, which Will prohibit any and all actions to obtain or exercising control over property of the bankruptcy estate This includes proceedings to diVide property of the estate during divorce Usually, the speCIfics of how your bankruptcy Will affect your divorce depends on whether you file for Chapter 7 or Chapter 13 bankruptcy
Bankruptcy And Divorce Costs
Bankruptcy filing fees are the same for joint and individual filings. So filing a joint bankruptcy with your spouse before a divorce can save you a lot of legal fees. Also, if you decide to hire a bankruptcy attorney, your attorney fees will likely be much lower for a joint bankruptcy than if each of you filed separately. However, you should let your bankruptcy attorney know about your upcoming divorce as there may be a conflict of interest for him or her to represent you both.
Filing for bankruptcy before a divorce can also simplify the issues regarding debt and property division and lower your divorce costs as a result.
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