How do bankruptcy and divorce work together?
Couples facing both bankruptcy and divorce should carefully balance the order in which they address these two events.
There are several common sources of stressors on marriages and many couples in Florida will agree that money is one of those stressors. The problems brought about by finances may range from different approaches to handling money to the lack of enough income to support a family.
When a couple finds themselves engrossed in debt to the point where they believe bankruptcy might be the best option, they sometimes also find themselves at the breaking point of their marriage. Choosing how to balance bankruptcy and divorce requires a careful assessment of the couple’s debts and assets to make the best choice for their situation.
A bankruptcy may be filed by one spouse individually even before the divorce has been initiated. It may also be filed by both spouses jointly. The decision about when to file for bankruptcy can make a big difference in the future of the liability for the debt.
As explained by Bankrate, if one spouse files for a Chapter 7 bankruptcy prior to the finalization of the divorce, the other spouse may end up liable for the debt in the eyes of the creditors. If, however, a divorce decree is finalized and stipulates that one party is responsible for a certain debt, that decree is considered a legal judgment and may not be discharged via a future bankruptcy.
Proactive action is recommended
CreditCards.com recommends that couples cancel all joint credit cards as soon as they know they are going to get divorced. This move will at least halt further joint debt from being incurred. It is also wise to document all financial obligations as early as possible in the divorce process.
Understanding Chapter 7 and Chapter 13 plans
There are distinct differences between the two primary forms of consumer bankruptcy. My Horizon Today explains that Chapter 7 bankruptcy plans tend to work well for people with large amounts of unsecured debt. In these plans, assets such as homes and cars may be taken by creditors to repay some portion of the debt.
If saving a home or other asset is important for a couple, a Chapter 13 might be the appropriate option. Chapter 13 plans, however, last for a minimum of three years. A divorce during this period may necessitate changes to the bankruptcy that could be complex and costly.
Spousal cooperation should be considered
If a joint bankruptcy prior to filing for divorce is an option, people should be honest about their ability to work with their spouse to complete this. If there is a high level of conflict between the parties, this may not be possible.
Couples who need debt relief via a bankruptcy and who are also wanting to get divorced should talk with a bankruptcy attorney in Florida before making any final decision about their divorce or bankruptcy plans so that they protect their ability to get the fresh start they are seeking.
The lawyer will look at potential conflicts and other complications. In some situations, an attorney may not be able to ethically represent a couple in bankruptcy if the filing would help one spouse but harm the other. Call us at 407-915-0842, or contact us online.