Filing for Bankruptcy Before, During or After Divorce?
Financial troubles are a leading cause of divorce in America. However, getting a divorce might not always solve your financial problems. It might even create additional financial issues for those involved. If you are considering, have already filed for, or have just finalized a divorce, contact a knowledgeable North Carolina bankruptcy lawyer to discuss what filing for bankruptcy at this time might entail.
At Sasser Law Firm, our legal team features three board-certified bankruptcy lawyers. We have experience handling thorny bankruptcy cases that interact with domestic law issues. Our firm has exclusively handled bankruptcy cases for over 20 years, and we have filed over 9,000 cases. When you work with our firm, you will never be pressured to file for bankruptcy. We’ll take the time to explain your legal options, so you can make the best decision for your future.
If you are dealing with overwhelming financial obligations while also considering a divorce, know that you’re not alone and legal help is available. Contact Sasser Law Firm to speak with our knowledgeable bankruptcy attorneys and discuss your situation.
What Happens to Your Credit After Divorce?
When you file for divorce, you and your ex-spouse must divide your marital liabilities and assets. This may be accomplished through a negotiated settlement between you and your ex-spouse. Or you can have a trial to let the court decide on an equitable division.
As a result of equitable distribution in divorce, you might be partly or entirely liable for certain debts held solely in your ex-spouse’s name before the divorce. When those new debts appear on your credit report, it could negatively impact your credit score, especially if your ex-spouse had been delinquent on payments.
However, there are plenty of strategies to rebuild credit after bankruptcy + divorce. You can learn more here.
Pros and Cons of Filing for Bankruptcy Before Divorce
Because splitting debts in divorce can have a significant impact on one or both spouses, some married individuals or couples choose to file for bankruptcy before seeking a divorce. This path has both pros and cons.
Some benefits of filing for bankruptcy before divorce include the following:
- Saving money — If you file jointly for bankruptcy while still legally married, you can split the fees and costs of bankruptcy. For couples that are separated, a joint chapter 7 bankruptcy is possible. However, there are pitfalls to be mindful of.
- Simplifying dividing assets — Eliminating certain debts can make an equitable distribution during divorce easier since they will not need to be classified and divided.
- Avoiding debt — You can avoid being made liable for certain debts originally taken out by your spouse that the divorce court deems marital debt.
However, filing for bankruptcy before divorce also has its drawbacks. In particular, a Chapter 13 bankruptcy becomes more complex once you and your ex-spouse have finalized your divorce. A Chapter 13 bankruptcy requires you to pay down your debts over three to five years. If you or your spouse get into a Chapter 13 repayment plan and then get a divorce, it will be a while until you’re finished paying on your shared plan. It is rarely a good idea to file a joint chapter 13 case if you are having marital difficulties. That said, if a joint case is filed, it can be split apart into two separate cases in the future if that is appropriate.
Filing Bankruptcy During Divorce: Is it a good idea?
Filing for bankruptcy while litigating your divorce has its pros and cons. Whether it is a good idea depends on many factors including how assets are titled, how debts are structured between the spouses, income, expenses, etc.
What happens in your divorce case could impact the decision being made in your or your spouse’s bankruptcy case and vice versa, which could impact either case.
In many cases, the court in your divorce case might be legally barred from dividing your marital debt inequitable distribution until the bankruptcy case is resolved. You should speak with a North Carolina bankruptcy attorney before filing for bankruptcy if a divorce is in progress.
Chapter 7 vs. Chapter 13 During a Divorce Process
Chapter 7 bankruptcy involves selling or liquidating non-exempt assets (if any exist) to generate cash to pay the debt. Many debt balances are then discharged by bankruptcy discharge. You will no longer have an obligation to pay those debts. There are exceptions to what is discharged and some primary exceptions are domestic debt, tax debt, and student loan debt.
Conversely, Chapter 13 bankruptcy involves establishing a three-to-five-year plan to pay down some or all of your outstanding debts using your disposable income and/or voluntary liquidation of assets. In a Chapter 13 bankruptcy, you make a monthly plan payment to a trustee, who uses the money to pay claims of creditors filed in your case. Pre-bankruptcy domestic support obligations must be paid in full in chapter 13 either via direct payments or through trustee disbursements. Many debts that are not paid off in full in the bankruptcy case are discharged, but there are exceptions including student loan debt. Importantly, non-support marital debt is dischargeable in chapter 13 whereas it may not be in chapter 7.
The differences between these two types of bankruptcy are important during a divorce. Chapter 7 bankruptcy has “means testing” limits if the debts are primarily consumer in nature.
A no-asset Chapter 7 bankruptcy is normally completed in 3-4 months. A Chapter 13 takes 3-5 years.
Talking With a North Carolina Bankruptcy Law Firm
For more than 20 years, the dedicated lawyers at Sasser Law Firm have been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law. Contact us today online or give us a call for a free case review.