Financial problems are the leading causes of divorce. The legal process results in increased financial strain by splitting a couple’s income and assets. Unfortunately, before a divorce, many people tend to become emotional and confused. In most cases, both parties end up paying more than is necessary.
When bankruptcy is involved, the chances of anger-driven financial challenges increase. Note that although you intend to end your marriage, the financial impact of your decisions will affect your life and your family’s lives for many years. Therefore, you should think about the short-term and long-term effects of your choices. Having an experienced divorce attorney on your side that also has experience with bankruptcy or is in a law firm that has bankruptcy attorneys is very important.
Don’t Let Emotion Control Your Decisions
The period leading up to and during divorce can be emotional, contentious, and confusing. Too often, a divorce case ends up costing both spouses more than is necessary, both economically and in emotional energy. With bankruptcy in the mix, the opportunities for anger-driven financial mistakes are magnified. Remember that while your marriage will soon be over, the financial impact of the decisions you make now could affect your lives and your children’s lives for years to come. Though it isn’t always possible, working together with your spouse to resolve outstanding debt problems through a solution such as a joint Chapter 7 bankruptcy case is often the best answer from a practical, economic standpoint.
Before you decide you “just want to get it over with” or make financial decisions designed to hurt your spouse, make sure you have a thorough understanding of the short and long term effects your decisions will have on you and the rest of your family.
The Best Time to File for Bankruptcy
The most common mistake among couples is about timing. Usually, this happens when one party wants to file bankruptcy but later decides to postpone until the end of the divorce process. The ideal approach to divorce and bankruptcy will depend on several factors.
You should discuss this with your divorce attorney and an experienced bankruptcy lawyer to help you make an informed decision. Irrespective of the time spouses decide to file for bankruptcy, it’s always advisable to have a clear plan for negotiating different aspects of a divorce and your ongoing financial obligations.
Which Should Come first?
There are several considerations when choosing the best option. If both parties are on amicable terms, it’s advisable to start with bankruptcy.
By doing so, a couple can share the legal and filing costs and avoid paying a joint debt. In some jurisdictions, you can get double exemptions on assets when you file joint bankruptcy. For example, if a property is exempt up to $100,000 with a single bankruptcy, you may enjoy double exemption, allowing it to be exempt up to $200,000.
Note that exemptions vary from one jurisdiction to another. Therefore, consider consulting an experienced bankruptcy attorney about your situation. When you file bankruptcy first, the process of dividing assets becomes easier.
One of the reasons why people go for chapter 7 bankruptcy is the timeline. With Chapter 7 bankruptcy, a couple can eliminate all dischargeable debt within six months, giving them more time to file divorce sooner if they decide to go for bankruptcy first.
On the other hand, chapter 13 bankruptcy involves making a three to five-year payment plan instead of eliminating outstanding debts. Additionally, it can drag the divorce process longer than necessary. When you opt for chapter 13 bankruptcy and choose to file divorce during the repayment period, you are allowed to cancel or restructure your bankruptcy plan.
Note that even after canceling, you will still be liable for the debt you and your partner owe. When a couple decides to restructure the plan, it divides it into two cases, one for each spouse. After that, the partners can easily handle bankruptcy separately from each other. The cases can become complicated if not handled properly and can delay the divorce process. A bankruptcy attorney will recommend the ideal action for your situation.
Bankruptcy and Divorce Costs
The charges are the same for both individual and joint bankruptcy filings. Therefore, the latter will save you a lot of money. Additionally, when you hire a bankruptcy lawyer, the legal fees will be lower for joint bankruptcy than when done separately.
Discharging Marital Debt
The litigation process to assign debts to each partner can be costly. Additionally, when a spouse is ordered to pay a debt during divorce proceedings, that doesn’t eliminate the other spouse’s obligations towards a particular creditor. For example, if your partner is ordered to pay a joint credit card debt and files for bankruptcy, you may still be liable.
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