Everything You Need To Know About Filing Bankruptcy After Divorce
In their wedding vows, couples vow to stay married until death does them part. Unfortunately, life does not always work out as planned. In the United States alone, over 800,000 people file for divorce every year.
Divorce can be a messy and frustrating process. In addition to emotional strain and custody battles, many divorced people face financial difficulties as they transition back to singlehood.
Are you facing financial challenges after ending your marriage? Then you may be surprised to learn that bankruptcy after divorce could be your best option. Here’s everything you need to know about declaring bankruptcy, and how to decide if it’s right for you.
Why File for Bankruptcy?
There are many reasons individuals may choose to file for bankruptcy after the divorce. In most cases, the decision is based on the challenge of transitioning from a dual income to a single income household.
For instance, if you used to split your rent or mortgage payments with your spouse, taking on the whole cost yourself can make it difficult to keep up with other bills. Or perhaps you and your spouse used to share a single car, and now you must cover a car payment on your own. These changes can significantly impact your disposable income.
In some cases, individuals are left with debts accrued by their ex-spouse. If your spouse racked up debt on a credit card in your name, those bills won’t go away after the divorce. In some cases, filing for bankruptcy after divorce is a better option than paying off your ex’s debts.
What Happens When You File for Bankruptcy?
When a person files for bankruptcy, they initiate a process that allows them to repay their debts under the protection of a federal program. There are two types of bankruptcy available for individuals.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy. This is because the bank requires the filer to liquidate and sell off certain assets to pay off their debts. In return for selling off property, unsecured debts like medical debts and credit card debts are forgiven.
Not everyone qualifies for Chapter 7 bankruptcy. Individuals with sufficient income to develop a reorganization plan under Chapter 13 are required to take that option.
Chapter 13 Bankruptcy
By contrast, Chapter 13 is considered reorganization bankruptcy. Under this process, the debtor creates a 3-5 year plan to pay off their debt in monthly installments. At the end of the repayment period, the remaining balances on most debts are discharged.
The Automatic Stay
Once you file for bankruptcy, an injunction called an automatic stay will go into effect on your assets. This stay protects you from most lawsuits and protects most your assets from repossession by creditors. If your divorce has not been finalized, the stay may also impact proceedings regarding the division of marital property.
What are the Effects of Bankruptcy?
If you are dealing with a significant amount of debt, filing for bankruptcy might sound like a ticket to freedom. To a certain extent, bankruptcy can provide individuals with a fresh start. That said, there are drawbacks to filing that you should seriously consider.
One of the biggest impacts of filing for bankruptcy after divorce is on your credit score. Bankruptcies can impact your credit score for up to ten years. This can make it difficult for you to open new credit cards, get a car loan, or buy a new home.
Luckily, there are ways you can rebuild credit after a bankruptcy. For example, working with a credit union to take out an installment loan or to open a secured credit card can be a good option. While it will take time to restore your credit, it will not be impossible.
There is no form of bankruptcy that will eliminate all of your debts and payment obligations. For instance, bankruptcy will not eliminate outstanding taxes or student loan payments. Additionally, filing for bankruptcy will not free you from an obligation to pay child support.
How Will Bankruptcy Impact My Ex-Spouse?
If you file for bankruptcy, the effect it has on your ex-spouse depends on how your assets were structured.
In some ways, your spouse will be unaffected. For instance, if you file for bankruptcy, that will not impact your spouse’s credit report in any way, even if you had joint debts.
That said, filing for bankruptcy does not free your spouse of their debt obligations. So, if you have a joint debt, your spouse may be held responsible for the entire debt after you file for bankruptcy.
What if My Spouse is Filing For Bankruptcy?
If you are on the other side of the equation, wondering how your ex-spouse’s bankruptcy will affect you, there are steps you can take to protect yourself. For instance, filing for bankruptcy protection can protect you from being held solely responsible for joint debts.
If possible, you should discuss these issues with your spouse before filing for divorce. Filing for a joint bankruptcy, or filing for bankruptcy separately before the divorce, might be a better financial option for both of you.
Getting the Representation You Need
Whether you or your spouse is planning to file for bankruptcy, it is essential to work with a professional. This will ensure that your interests are protected.
When dealing with these kinds of complex financial issues, it is a good idea to work with a law firm with a broad range of expertise. For example, the Wiseman Lee law group has attorneys that specialize in both family law and corporate law. This range of knowledge makes these professionals well suited for working with couples in the process of divorce.
Get Help With Bankruptcy After Divorce
Filing for bankruptcy after divorce can be a challenging process. But if it is the right choice for you, it will be well worth it in the end.
Do you need help navigating your divorce? Then check out our legal directory. The attorneys in our listings are all qualified professionals who can assist you with your legal needs.