Eliminate Divorce Debt with Bankruptcy
The leading causes of divorce include debt and financial pressure, but even when debt is not directly to blame, splitting up a household can be a significant budgeting challenge. Both parties must now deal with similar living expenses as well as less income to handle those expenses. If both spouses owe a debt together that is secured by a vehicle or a home, the parties may agree, or the divorce court may order, that one person is responsible for paying the debt, while the other is bound by the debt. The result? Credit damage and headaches for the non-paying party that can continue for years following the divorce.
However, it is common for couples considering divorce to contemplate filing for bankruptcy, whether that be before, during, or after the divorce is final. However, there are several critical things to know before taking this step, and an experienced divorce debt bankruptcy lawyer at Burr Law Office can help walk you through the process and answer any questions you may have.
Should I File Before the Divorce?
If the parties are splitting amicably and are able to cooperate when filing for bankruptcy, and if they are eligible for a Chapter 7 bankruptcy, a joint filing might be the smartest and easiest option. Under a joint petition, marital debt is eligible to be deleted within three and a half months and only nondischargeable debt, including taxes, is left to be split during the divorce proceedings. If a particular debt is secured by a vehicle or home, the party that is not maintaining ownership and paying for the vehicle or home will discharge, or eliminate, that debt, and he or she will no longer worry whether the other party is making payments.
Filing a joint Chapter 7 bankruptcy prior to filing for divorce also avoids duplication of filing and attorneys’ fees. In other words, parties may benefit from a “two for the price of one” situation. Parties may also be eligible to double their exemption amounts, which ultimately protects their marital property from lenders or creditors seeking repayment. More importantly, this option helps to prevent quarrels regarding debt issues and money in the divorce.
Here at Burr Law Office, we rarely recommend filing for Chapter 13 bankruptcy before the divorce as this option requires a three- to five-year payment plan. Both parties must be active participants and be willing to communicate throughout the process, and in our experience, we have found that most soon-to-be-divorced couples would prefer to settle their finances as soon as possible.
Should I File During the Divorce?
Except in rare cases, parties should avoid filing for bankruptcy at the same time that they are going through a divorce proceeding. In most cases, a divorce debt bankruptcy lawyer representing both parties during a divorce have a significant conflict of interest, and both parties must acknowledge this conflict and waive it in order to proceed with the filing. In addition, a spouse who uses his or her own bankruptcy lawyer to file for bankruptcy and discharge debt before the divorce is final may find that he or she is ordered by the divorce court to repay one or more debts. Even if the creditor is unable to collect on the spouse who is filing for bankruptcy, the other party can bring to light the fact that the other person is not following the divorce order.
Should I File After the Divorce?
In some cases, it might make sense to wait until the divorce is finalized before filing for bankruptcy, and an experienced divorce debt bankruptcy lawyer at Burr Law Office can help you make this decision. Once the divorce is final, both parties have a clear understanding of what, if any, debts for which they are responsible. In addition, if a party was ineligible to file for Chapter 7 when he or she was married may now qualify based upon potentially reduced income. Keep in mind that a spouse who has spent the last few years as a homemaker may face particular challenges when he or she goes to re-enter the workforce, and that the income may be significantly reduced from what was previously earned.
Some parties may agree to take on debt during divorce proceedings, believing that they will have no difficulty paying, only to find out months or years later that they cannot afford both the debt and their necessary living expenses. They might also find that they are held responsible for a joint secured debt if their ex-spouse defaults and fails to pay his or her share as agreed.
What Debts Will Be Discharged?
When a party files for bankruptcy, most of his or her debts are dischargeable, meaning that he or she is released from any legal obligation to repay the debts. However, child support and spousal maintenance are not eligible for discharge, and these debts will survive the bankruptcy case. Similarly, parties may not discharge property settlement agreements in a Chapter 7 bankruptcy but may do so in a Chapter 13 bankruptcy; a Chapter 13 may also stop creditors from attempting collection methods on the other ex-spouse.
Can I Wipe Out Divorce Attorney Fees through Bankruptcy?
If a party has legal debt such as attorneys’ fees due to a divorce proceeding, in most cases, this debt can be discharged in a bankruptcy filing as long as the bankruptcy is filed following the divorce. Keep in mind that although the attorney may very well file a complaint to be paid, if the court did not order the divorce attorneys’ fees to be paid in a child support decision, they will be considered dischargeable.
Are Court Fees a Dischargeable Debt?
On the other hand, court fees are typically not dischargeable as fines and fees imposed by the court are considered “punishments” to citizens who broke the law. Therefore, it is unfair to charge one citizen these fees and not another simply because he or she cannot afford to pay. However, if the fine or fee is not punitive, it may fall into the “dischargeable debt” category. For example, if a victim receives an award after winning a personal injury lawsuit, he or she is not being punished but rather attempting to recoup what he or she had lost.
Contact Us Today
Divorce by itself can be a tricky, confusing process. When it is combined with the consideration of a bankruptcy filing, it can be that much more difficult. Fortunately, the bankruptcy lawyers at Burr Law Office can help with divorce debt. We are here to answer any bankruptcy questions you may have, and provide you with the solution we feel will give you the best possible outcome. We’ll help you get your life back to normal as quickly as possible. Contact us today at (262) 827-0375 to learn more, or to arrange a Free Bankruptcy Evaluation.