Divorce and Bankruptcy
If you choose to file for bankruptcy to resolve your debts or protect your property, you may find that people close to you may be affected by your filing.
Because of the realities of shared properties and payment responsibilities, bankruptcy filings between married and formerly married couples come with specific characteristics.
If you're considering bankruptcy and you're divorced or going through a divorce, be sure to read on to find out which debts you may not be able to discharge.
Also, if you're worried about how your spouse or ex-spouse's bankruptcy filing could affect you, read to learn how you may protect yourself and your property.
When You File Bankruptcy
If you're married and you or your spouse is considering bankruptcy, you'll have to determine whether to file separately or jointly
Take several factors into consideration when making this decision:
- What Types of Debt Do You Have? If much of your debt is jointly held, a joint bankruptcy filing may make more sense. Chapter 7 bankruptcy, for instance, does not protect co-debtors when one files for bankruptcy, so filing singly may not make sense (because the other spouse would still be responsible for paying the debts).
- What are Your State Laws? Depending on whether your state has community property or equitable distribution laws, one type of filing may make more sense for you. A bankruptcy lawyer can help you determine where you fit and your state bankruptcy laws.
- What's Your Current Marital Situation? If you and your spouse are currently separated and have worked out most financial considerations, a single filing may be more practical, especially under Chapter 13.
When Your Ex-Spouse Files for Bankruptcy
Divorce is commonly cited as a major contributing factor that pushes people to file for bankruptcy.
Sometimes, it's as simple as this: the money that was supporting one household now has to be stretched over two homes. That alone can cause serious financial distress.
It's important to understand what could happen to you or your ex-spouse if one of you files for bankruptcy after the split.
Below are some considerations to think about:
- You may still owe your creditors. If your spouse files for Chapter 7 bankruptcy and receives a debt discharge for a debt the two of you held jointly, you may still be responsible for paying it. Even though the debt is no longer your responsibility according to the divorce, the agreements of the divorce settlement cannot extend to outside parties, so you may end up paying.
- Alimony and child support are still due. Certain types of debt are not dischargeable in bankruptcy cases. Spousal support (alimony) and child support are two of these. So, whether you currently pay your spouse or vice versa, these payments typically cannot be canceled by the bankruptcy court.
- Joint filings are no longer possible. Once the divorce is complete, a couple can no longer file for bankruptcy jointly.
Qualifying to File Bankruptcy Before and After Divorce
Since the new bankruptcy law was introduced in 2005, the criteria for filing under Chapter 7 of the U.S. Bankruptcy Code have been stricter.
For this reason, the court may consider that you and your spouse may have too much income to file under Chapter 7 while you're still married.
This may not be a major issue; Chapter 13 bankruptcy may provide the protection you need. But, if you're looking for a complete discharge of debt, you may be more likely to qualify for it after divorcing (and therefore dividing the household income in half
A bankruptcy lawyer can help you crunch the numbers and help you determine whether bankruptcy may provide the relief you need.