Bankruptcy Before Divorce 3

Money problem and marital problems often go hand-in-hand, unfortunately. And, often, the search for a divorce attorney coincides with the search for a bankruptcy attorney. There are several reasons, though, that a couple may want to consider delaying the divorce until after the bankruptcy is completed.

Why File Bankruptcy Before Filing for Divorce?

Bankruptcy will eliminate most debts (and assets) and will result in a simplified divorce negotiation process. Rather than arguing over who is responsible for certain debts, they can be discharged through bankruptcy. Of course, assets (if there are any) will most likely be liquidated to pay joint debts in the process as well.

The elimination of both debts and assets though can make the process simpler. It can also cut filing costs and attorneys’ fees as well as help a divorcing couple avoid future discord over the discharge of jointly obligated debt.

And that can be key to a “successful” divorce. Couples can agree, via a divorce settlement agreement, to each be responsible for certain marital debts. If there is no settlement, the court can order one party or the other to pay some or all of the marital debt. However, none of this (neither the settlement nor the divorce judgment) is binding on the creditor.

Creditors Not Bound by Divorce Settlement Agreement or Judgment

If a husband is ordered to pay a joint credit card account by the court but later falls behind on payments, the wife is still technically an account holder as far as the lender is concerned. The wife will still be on the hook for the debt. She can then go back to court against the husband to enforce the judgment – but the judgment itself is not binding on the creditor. The situation can get even stickier if the ex-husband then takes bankruptcy and has the debt discharged.

One answer then to these potential problems is to file bankruptcy before filing for divorce.

Automatic Stay and Discharge

Because of the automatic stay in a bankruptcy case, filing for bankruptcy will require all creditors and collections agencies from calling or garnishing wages or accounts until the bankruptcy has been completed. This can temporarily take the financial pressure off of a separating or divorcing couple so that they can work out the details of a divorce settlement.

Ultimately, in a Chapter 7 bankruptcy filing (which is most common for individuals and married couples), the marital debts will be discharged – wiped clean. Some assets will be declared exempt (depending on your state of residence) and others will be liquidated to pay creditors.

A bankruptcy will NOT, however, keep any party from having to pay child support or spousal support. It will not generally discharge student loans or criminal restitution. It will also not vacate the requirements of most divorce property settlements.

Consult with Divorce Lawyer and Bankruptcy Lawyer

While your divorce attorney is probably relatively well-versed in bankruptcy law, it may be best to work with both a family law attorney and an attorney experienced in bankruptcy law. Your divorce attorney can most likely point you in the direction of a bankruptcy lawyer he or she has worked well with in the past.


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