How the interplay of bankruptcy and divorce can affect your finances
Couples dealing with financial problems well know the stress that such problems can put on a marriage. For these couples, it is easy to understand how economic issues are one of the leading causes of divorce. They have first-hand knowledge of the fights, the anxiety and the strain that come along with constantly worrying about money.
Having the foresight to understand that a bankruptcy filing might be necessary to resolve debt issues goes a long way toward getting a fresh financial start, but being unaware how a bankruptcy might conflict with a divorce filing could put that fresh start in jeopardy. When the bankruptcy is filed, whether one or both spouses will file, and the parameters of the divorce property settlement can all dramatically change the efficacy of the Chapter 7 or Chapter 13 bankruptcy process.
Details and timing are key
Precision is important in all bankruptcy cases, but even more so when the filing has the potential to affect both spouses and potentially an entire family. The decision when and how to file for both bankruptcy and divorce must only be made after carefully weighing the pros and cons, and after ample consideration has been paid to the financial outcome expected when both processes have been fully resolved.
Filing for bankruptcy before divorce may be appropriate when there are extensive personal debts of one spouse and lower amounts of joint debt. Having the bankruptcy resolved prior to the divorce filing could put both spouses on even financial footing prior to the sometimes-complicated process of divvying up marital assets and debts.
A pre-divorce filing could also be best for the couple if they plan to file jointly. Marital debts could be discharged, including mortgage or auto loan deficiencies, joint credit cards, medical bills, etc., again making way for a fresh financial start for the couple once their divorce is final. This might not be possible depending on the relationship between the spouses, though; animosity could lead to the parties not being committed to the process or not being totally honest about their finances.
In other situations, waiting until the divorce is final and then seeking Chapter 13 or Chapter 7 bankruptcy protection might be for the best. It is important to note, though, that if only one spouse files for bankruptcy following the divorce, it can lead to the other spouse being responsible for the entirety of joint debts that the two were ordered to split in the divorce decree. A bankruptcy filing for one party will only excuse his or her portion of a joint debt, thus making the other debtor liable for the whole thing should a creditor seek to collect.
Clearly, there are many factors to consider when making the decision to file for bankruptcy, and even more when a divorce is thrown in the mix. Having guidance from knowledgeable sources is vital. For more information about how a bankruptcy filing could affect your divorce (or vice versa), seek the advice of an experienced attorney in your area.