Divorce after Bankruptcy
If you have been considering declaring bankruptcy, going through divorce proceedings can significantly complicate the whole process. In a typical divorce, assets are divided amongst the couple, but what happens when one couple is bankrupt or is in the process of declaring bankruptcy?
When bankruptcy is thrown into the midst of a divorce proceeding, it is important to keep track of all of your debts and to whom they belong. If much of the debt was incurred by both parties (for example, you have outstanding credit card debt that is in both of your names or are both cosigners on an overdue mortgage), then consider convincing your soon-to-be-ex spouse to file a joint bankruptcy claim with you. This will significantly decrease the debt held between the two of you and will help the divorce proceedings run more smoothly. Once the two of you file for a joint bankruptcy claim, the courts will issue an automatic stay, which means that debtors and collectors must stop harassing you for payment. Not only will this ease the financial strain that you may be experiencing, but it may also preserve some precious peace of mind while you go through your divorce.
If you and your spouse declared bankruptcy before initiating divorce proceedings, your bankruptcy trustee will now have control of your non-exempt assets; therefore, there will be fewer assets to divide during the process of the divorce. While this may not excite the party who is seeking considerable financial support from the other party, this makes the divorce much more amicable and simple in the end. Additionally, because most of the debts are written off (especially when filing a Chapter 7 bankruptcy), both parties will inherit little to no debt after the divorce. In other words, it is a win-win situation for everyone!
However, if you or your spouse pays alimony or child support to the other party, this debt will not be discharged by the courts. Other debts that are not wiped away under a Chapter 7 bankruptcy filing include debts that have been incurred through fraud or theft, criminal restitution, and some obligations for property settlement. In regard to property settlement, this debt is often considered dischargeable (which means that you will still have to pay this debt even after filing for bankruptcy), but if you or your spouse can prove that you cannot pay the debt while still taking care of any dependents, most courts will eliminate this debt.
If divorce is in the cards while you are considering filing for bankruptcy, attorneys will encourage you to file before actually going through with the divorce for the sake of simplicity. Y will save money on the filings-you will file for one claim instead of two-and your divorce will be simpler in the end, which will make both parties feel much saner!
