By: Robert J. Harris
I am sorry to say there is a link between bankruptcy and divorce. In fact, financial difficulties are one of the leading causes of marital dissolution. There are two situations we see most often.
First, where the marriage is in difficulty because of financial problems; And second, where the parties know that the dissolution will result in overwhelming financial hardship, and a bankruptcy is an integral part of the dissolution process.
Whatever the case, here is what you need to know:
1. Married person filing individually. Married people can file bankruptcy individually, without their spouse. This may be a good alternative If most of the debts are in just one spouse's name. But if the debtor is living with his or her spouse, the court will want to know about both of their incomes and expenses. This may be enough debt relief to take some of the stress out of the relationship.
2. Joint bankruptcy. Only married people can file a joint bankruptcy. If you wait until after you're divorced, you will each have to file bankruptcy on your own. That means two filing fees and two lawyer fees. But, depending on the conflicts between the parties, debts and status of the divorce, it may be the only alternative. If a couple has already filed for a divorce, or has made concrete plans to do so, then there are conflicts of interest issues that need to be discussed between the bankruptcy attorney and the clients. This is a case by case analysis, and there are a lot of issues for you to consider. Many times the bankruptcy attorney can work with the divorce attorneys to achieve a good result for everyone.
3. Child support and alimony. You can't bankrupt out of child support, or spousal support. If you were ordered to pay part or all of the medical/dental debts of your children in a divorce decree, this may be considered child support. If you were ordered to pay your ex-spouse's attorney fees, this may be considered a form of spousal support. If you have significant child support or spousal support arrearages, you may want to consider filing Chapter 13 to consolidate and pay these debts.
4. Property/debt settlements. This is perhaps the biggest change in the 2005 Bankruptcy Code. Let's say that you are ordered in a divorce decree to pay a joint credit card. If you don't pay it, your spouse can sue you for the money, or move to hold you in contempt of court for violating your divorce decree. Under the old law, you could file Chapter 7 and possibly get out of this obligation. The 2005 amendments to the Bankruptcy Code made this impossible in Chapter 7, but it is still possible in Chapter 13.
In these difficult economic times, it's more important than ever that when marriages dissolve the parties consider debt relief. Two households are more expensive than one. And when the choice is between keeping your vehicle so you can get to work, or paying the VISA bill, you need to make the best choice for your family.
If you'd like to find out more, visit Hackett and Harris website.