It’s no surprise that financial problems can lead to stress in a marriage. But what happens when that marital strife leads to divorce, and the financial problems lead to bankruptcy? Bankruptcy and divorce laws overlap because both involve decisions about property and debts. How and when you file for bankruptcy or divorce can result in the loss or savings of thousands of dollars, and I’m not talking about attorney’s fees.
In general, it is easiest and most resource efficient to file and complete a bankruptcy case prior to filing for divorce. This allows the couple to file a joint bankruptcy case, thereby reducing fees, and then removing the need to allocate debts in the divorce proceeding because they will already have been discharged. Of course there are exceptions, as some types of debt survive a bankruptcy discharge. Taxes and student loans may still have to be divided between the parties as part of the divorce. But, debts like credit cards and medical bills are more than likely discharged and no longer have to be involved in the divorce process.
However, there are times when filing a joint case is not feasible. Divorce almost always brings out strong emotions, and if parties can’t agree on certain issues, filing a bankruptcy case together just isn’t possible. Also, there are times when the divorce itself is a source of the financial strain which leads to the need to file bankruptcy. When this happens, it is important you find a competent bankruptcy attorney to navigate you through the many laws and rules that determine your ability to file bankruptcy and what debts you will be able to discharge. Debts arising out of the divorce itself can be particularly confusing. Debts, such as domestic support obligations, which include child support and spousal support, are not dischargeable in bankruptcy. However, property settlement payments and attorney fees can be dischargeable under certain circumstances. There are also times when a divorce creates an asset that you may or may not be allowed to keep while in bankruptcy. Your ability to truly get a fresh start from the bankruptcy process will depend on the advice you get regarding these issues.
No one ever plans on filing for bankruptcy or divorce. But, if you find yourself in either position, take the steps necessary to get the advice you need.