Should I File for Bankruptcy During My Divorce?

 Posted on August 02, 2022 in Bankruptcy

The divorce process can cause both spouses to experience financial difficulties. Finding new living arrangements and making adjustments to budgets will usually be necessary, and each spouse will need to determine how they will be able to support themselves on a single income. This process can be even more difficult if a couple has significant debts. In these cases, one or both spouses may be considering filing for bankruptcy, but when doing so, they will need to understand their options and the complications that may arise.

Chapter 7 Vs. Chapter 13 Bankruptcy and Divorce

Decisions about whether to file bankruptcy before, during, or after divorce will often depend on the type of bankruptcy a person or couple plans to pursue. While Chapter 7 bankruptcy will allow most debts to be eliminated, a couple may not qualify for this form of relief if they do not pass the means test because their combined income exceeds the median income in their area. For those who do qualify, completing a Chapter 7 bankruptcy before filing for divorce may be a good solution for addressing joint debts, and it may put both parties in a better financial position as they work to complete the divorce process. Either spouse may also choose to pursue an individual Chapter 7 case after completing their divorce.

If Chapter 7 is not an option, Chapter 13 bankruptcy may be available. In these cases, a debtor will propose a repayment plan in which he or she will make monthly payments for a period of three to five years. Because of this, Chapter 13 is usually not a good solution for spouses who are planning to get a divorce. If a couple had previously filed a joint Chapter 13 case and have a repayment plan in place, they will need to determine how to handle this plan after their divorce. In some cases, a bankruptcy may be “severed,” creating individual repayment plans for each spouse, while in others, a Chapter 13 case may be converted to a Chapter 7 bankruptcy for one or both spouses. 

If a couple files for bankruptcy immediately before or during their divorce, their case may not be able to proceed until they reach decisions about how their marital property will be divided. Following the completion of a divorce, either spouse may pursue bankruptcy individually. However, creditors will be able to collect joint debts from either spouse, regardless of how debts were allocated between spouses during their divorce. This means that if one spouse files for bankruptcy and receives a discharge of their obligation to repay debts that accrued during their marriage, creditors may still attempt to collect these debts from the other spouse.

Contact Our Charlotte Bankruptcy and Divorce Attorney

If you are planning to get a divorce and you are also considering bankruptcy, you will need to understand how these two cases may affect each other. At Blossom Law PLLC, we can advise you on the available options and provide legal representation during your bankruptcy case to make sure you can receive relief from your debts and move on to a better financial situation after ending your marriage. Contact our Concord divorce and bankruptcy lawyer at 704-256-7766 to schedule a free consultation today.

Sources:

https://www.experian.com/blogs/ask-experian/how-to-handle-bankruptcy-and-divorce-at-the-same-time/

https://www.myhorizontoday.com/bankruptcy101/should-i-file-bankruptcy-before-or-after-my-divorce/