Factors to Consider When Filing for Bankruptcy During Divorce

 Posted on December 00, 0000 in Bankruptcy

Divorce can be stressful for anyone, but it becomes especially difficult when a couple is struggling with financial difficulties during the breakup of their marriage. When spouses are facing overwhelming debt, bankruptcy may be their best option, allowing them each to have a fresh start after they have dissolved their marriage. However, if you are considering both bankruptcy and divorce, there are several issues that you should pay attention to when determining your best path forward:

Should I File for Bankruptcy Before or After Divorce?

In most cases, filing for bankruptcy prior to filing for divorce is the best option. When debts are shared by spouses, they can each be pursued by creditors if they fail to make payments. By filing for bankruptcy together, they can discharge their mutual debts, ensuring that neither spouse will be responsible for repayment of these debts after divorce.

However, you should be aware that filing for bankruptcy creates an automatic stay, stopping creditors from pursuing collection of debts and freezing your assets so the court can determine the full extent of your debts and assets. Filing for bankruptcy prior to divorce can cause the divorce process to last longer, since issues related to bankruptcy must be resolved before your assets can be divided in your divorce.

Should I File for Chapter 7 or Chapter 13 Bankruptcy?

Chapter 7 bankruptcy allows for the discharge of most debts, and it can often be completed in a few months. This is often the ideal solution for divorcing couples, allowing them to resolve their financial issues more quickly and simply. However, spouses’ combined income or shared assets may put them over the threshold for Chapter 7 bankruptcy, making Chapter 13 bankruptcy their only option when filing for bankruptcy together. If Chapter 7 bankruptcy is not available to you while you are married, it may be preferable to wait until your divorce is completed before filing for bankruptcy.

Chapter 13 bankruptcy requires the creation of a three to five year repayment plan, and a divorce cannot be completed during this time unless the repayment plan is canceled or restructured. If Chapter 13 bankruptcy is your only option, you may wish to complete your divorce first.

What Debts Are Included in Bankruptcy?

While most debts can be discharged through bankruptcy, there are certain debts that are nondischargeable. These include:

• Child support and spousal maintenance
• Student loans
• Government fines
• Guardian ad litem fees in family law cases

Contact a Carpentersville Bankruptcy Lawyer

If you are planning to get a divorce, Thomas Law Office can work with you and your spouse to determine your options for bankruptcy, helping you begin your post-divorce life on secure financial footing. Schedule a consultation with us today by contacting a McHenry County bankruptcy attorney at 847-426-7990.

Sources:

http://www.divorcemag.com/monthly-newsletter/5-things-to-know-about-bankruptcy-and-divorce

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