For couples that are saddled with substantial debt when it comes time for divorce, it may be a good idea to explore the options available to navigate the debt in the best way possible. One option at your disposal may be filing for Bankruptcy. In this week’s blog we look at some of the considerations for choosing to work with a Bankruptcy attorney, some timing considerations, and some other things you might want to think about as you move forward with your divorce.
Choosing to Consult with a Bankruptcy Attorney. One common cause of divorce is financial struggles or not being on the same page when it comes to spending habits and the management of finances and debt. If you are buried in debt at the time of divorce it may make sense to meet with a bankruptcy attorney to explore options before you move forward with your divorce. If debt is an issue you will want to get input from a professional as soon as possible to best keep your options open.
Difference between Chapter 7 and Chapter 13. In very simple terms a Chapter 7 bankruptcy is a liquidation where it identifies all the assets that you have at time of filing, identifies whether or not assets are exempt and then liquidates any non-exempt assets to pay off existing debt, with any debt not covered, liquidated. A Chapter 13 bankruptcy is a restructuring of debts and an entry into a payment plan with monthly payments, typically for five years. Getting any further into the detail of these options is beyond the scope of this writing. If your debt is a significant issue, consider speaking with a bankruptcy professional who will be able to provide you much more detail on these options.
Timing considerations. Timing is a very important factor when you are exploring the possibility of bankruptcy. If you and your spouse are working together, the best time to see a bankruptcy professional is before your divorce. At that time you will have all the options at your disposal. Will you jointly file before you proceed with divorce? Will one of you file before? Will one of you or both of you file separately after? All these options are also considered with both the Chapter 7 and Chapter 13 considerations. If your divorce is already filed then your issues may be somewhat limited, but going ahead and meeting right away with the professional assures you are in the best place to act on the information provided. Delay can continue to get in the way of best addressing the situation.
Disagreement between spouses. If you are not on the same page with pursuing bankruptcy as an option, it may be very valuable for you each to meet separately with your own attorney to get guidance. If your spouse will proceed with a bankruptcy and you will not, it is important to know exactly how this will impact you. Once a bankruptcy is granted, you will likely not be able to seek compensation for a liability that was otherwise assigned to them. Get educated on this issue by enlisting the right professional to provide the best guidance.
If debt is a big issue, getting a professional on board who can provide you with your options at the earliest time possible can make a great difference. Divorce can exacerbate any financial struggles that were already occurring. Understanding your options for dealing with extensive debt load is another step toward resolving your divorce in the healthiest way possible.