Divorcing? Protect Yourself by Filing for Bankruptcy First
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
When filing bankruptcy, consumers with low incomes and few assets usually choose chapter 7, which erases most of the person's debt.
People with high incomes and several assets usually choose chapter 13, which sets up a repayment plan of up to 5 years to bring debts current. At the end of that period, any balances that remain are usually discharged by the court.
To determine which chapter is more appropriate for you, make sure you consult with an experienced bankruptcy lawyer. Your bankruptcy attorney will explain how your divorce affects the division of property, liability of secured debts, as well as income, child support and alimony.
Little-Known And Costly Problem
The problem arises because many couples do not understand how their divorce will affect their debts.
When divorcing, the couple chooses how the assets and debts will be divided. In most cases, family court approves their decision. However, while the agreement between the spouses is legally binding, it has no legal effect on creditors. For debts, both spouses are responsible, regardless of who agreed to pay the debt in the divorce agreement. So if the spouse who agreed to pay the debt doesn't pay it, the other spouse is still legally liable for the entire debt, which exposes the other spouse to collection tactics and lawsuits.
You can avoid this problem by filing for bankruptcy before you divorce.When both spouses file a joint bankruptcy, they eliminate a large part of their consumer obligations, including credit card debt. Plus a joint bankruptcy eliminates the need of the divorcing couple to divide property. The result? More money is available to pay child support and alimony.
The Bankruptcy Court Stops Everything
If you delay the bankruptcy filing until the divorce is underway, then you simply multiply your problems. You see, the bankruptcy court will issue an automatic stay in the divorce proceedings. This means no assets can be transferred and no debts can be collected until the bankruptcy court lifts the stay. As a result, the family court must wait until the bankruptcy proceedings are final before it decides how to divide the property between the spouses. The family court can, however, still order the payment of child support and alimony, which are not affected by the stay.
As you can see, filing a joint bankruptcy before filing for divorce can eliminate many financial and property issues that usually come up. This greatly simplifies the divorce and protects both spouses in case one spouse later files for bankruptcy.
This is why it's to your advantage to consult with a bankruptcy lawyer and a divorce attorney before you proceed with the bankruptcy or divorce. They can work together to make sure you protect your rights and help you avoid stress and uncertainty. Lawyers will help you make good decisions about your bankruptcy, the filing date, how the stay affects you, and how bankruptcy will impact your debts, child support and alimony.