A divorce can be tough financially. Often, preexisting debts and difficulties are expanded and new costs, like maintaining two households instead of one, spring into existence.
Considering the financial implications of divorce, it is little surprise that bankruptcy often dovetails with divorce. Anyone struggling with debt and facing the end of a marriage should have a basic understanding of how divorce and bankruptcy intersect, and consider speaking with a San Diego bankruptcy and divorce lawyer.
Which Should Come First: Bankruptcy or Divorce?
Part of every divorce is dividing both marital assets and debts, each of which may impact bankruptcy considerations.
A married couple, even if not living together, may file bankruptcy jointly. In some instances, splitting couples find it helpful to file Chapter 7 bankruptcy or Chapter 13 bankruptcy before pursuing a divorce. That way, many debts can be eliminated and the process of dividing debt during divorce will be simplified.
However, there are also problems with filing for bankruptcy before a divorce. For one thing, to be eligible for Chapter 7 bankruptcy, debtors must pass a "means test," showing they are unable to make minimum payments to creditors. This means test may be difficult to meet in a dual-earner household. In addition, certain assets are exempt from Chapter 7 liquidation (they may not be sold to repay creditors); an individual who waits until after divorce to file for bankruptcy can strategically retain exempt assets in return for giving up nonexempt assets in the property settlement to maximize the benefits of a Chapter 7 filing.
While Chapter 7 involves an almost immediate discharge of debt, Chapter 13 bankruptcy entails a three- to five-year repayment plan. Being tied together for a minimum of three years can be a challenging prospect for any couple thinking about divorce.
Finally, it can be difficult to know how debts will be assigned in a divorce. Waiting until after filing for divorce to submit a bankruptcy petition can give individuals a clearer view of their financial situation and prospects.
Protect Your Assets From Creditors
Individuals who suspect a former spouse will file for bankruptcy shortly after divorce should take care to protect themselves in any property settlement. If one spouse agrees to repay a jointly-incurred debt as part of a settlement, then later files for bankruptcy, some creditors may seek repayment from the other former spouse. Certain clauses in the marital settlement agreement can hedge against this type of outcome.
Bankruptcy and Divorce Legal Help
If you think your divorce may become complicated by a bankruptcy, it is important to retain the services of an attorney with experience in bankruptcy and divorce. Both divorce and bankruptcy involve a fresh start; but, you have a better chance of getting off on the right foot if you can rely on a nest egg of protected assets. Contact a divorce and bankruptcy attorney today to find out how to keep your financial life intact.
