When a marriage breaks up, the dynamics of the family change immediately. It doesn't matter if the family is just a Husband and a Wife or there are children involved. The transition often brings stress, confusion, and uncertainty for everyone involved. Many different factors must be considered during a divorce such as custody, child support and the division of property. What many couples don't think about is how divorce will affect their debt? Who will pay what debts? Who is responsible for which debts? Confusion often leads to mistakes.
Because the expenses of maintaining two households instead of one are greater, it's not uncommon for either one or both of the parties to file for bankruptcy after filing for divorce. You or your ex-spouse may find it difficult to keep up with payments on credit cards and other debts on a single salary. It happens, and it's a legitimate reason to consider bankruptcy. It's important that you consult with an experienced bankruptcy attorney before filing for bankruptcy. The attorney will be able to help you determine whether bankruptcy is your best option based upon your present circumstances and provide you with the necessary information about filing for bankruptcy.
Chapter 7 vs. Chapter 13 Bankruptcy
The two main types of bankruptcy for consumers are Chapter 7 and Chapter 13. Chapter 7 bankruptcy is known as liquidation bankruptcy because the theory is that a debtor's assets are divided up into exempt (protected) and non-exempt (not-protected) assets and the non-exempt assets are sold by the bankruptcy trustee. In reality, very few debtors actually lose their assets. But if the debtor chooses to surrender items of personal property to the Bankruptcy Trustee, then the proceeds from the sale of those assets are then distributed to the creditors to pay back the debts.
Chapter 13 bankruptcy is when a debtor creates a repayment plan that requires them to make monthly payments over three to five years. At the end of the repayment period, most remaining balances are discharged. Whether you should file for Chapter 7 or Chapter 13 depends on many factors. An experienced bankruptcy attorney will be able to help you in determining which type of bankruptcy is right for you.
The Automatic Stay
If you or your ex-spouse files for bankruptcy, an automatic stay will go into effect. The automatic stay is a preliminary injunction that immediately stops most lawsuits filed against you, and it protects your money and property from creditors. Additionally, the automatic stay may cause a temporary standstill in the divorce proceedings in regard to the division of property and debts. This is especially important if you're filing for bankruptcy before the divorce is finalized.
If you and your spouse are considering divorce but have not yet filed, there are multiple options when it comes to filing for bankruptcy. Something to consider is the timing of filing for bankruptcy and whether you should file a joint bankruptcy before or during the divorce or an individual bankruptcy before, during or after the divorce. It's important to remember that the division of your marital creditors must be handled very delicately during your divorce, as the family law court and Judge cannot change the original contract between you and your creditors. This is very important to remember and is sometimes glossed over by the Divorce Attorneys because of the inability to change the original contracts. Therefore, any joint debt that is discharged by one party will leave the other party solely liable for repaying the entire debt. This often forces the other party to repay the debt or file for bankruptcy protection.
Child Support Obligations in Bankruptcy
Child support, alimony, and other domestic support obligations receive special treatment during bankruptcy. This means that filing for bankruptcy does not stop child support payments, and you or your ex-spouse will still be responsible for making these payments on time. Additionally, support arrearages are not dischargeable, but the automatic stay may cause a delay in the collection of support arrearages during the bankruptcy proceedings.