Balancing Bankruptcy and Divorce | BDR
Before you go to divorce court, a bankruptcy lawyer probably needs to help you get through bankruptcy court.
Bankruptcy and Divorce: A Complete Guide
Marital separations are almost always hard on everyone, emotionally and financially. After divorce, many monthly expenses of each spouse often double, because they are no longer shared expenses. Attorneys’ fees and other divorce-related costs often increase these expenses. Furthermore, in many cases, one spouse pays financial support and the other spouse must get by largely, or entirely, on this support alone.
These income decreases and expense increases often create a snowball effect which leads to bankruptcy. Perhaps Jennifer is unable to make her car payments because she can barely afford food, housing, medical care, and other essentials. Making things even more complex, many marriage dissolutions involve intricate property settlements.
So, the lawyer who handles your divorce/bankruptcy conundrum needs a special combination of compassion and experience. Our bankruptcy lawyers fit the bill. They know what it takes to get your family through this difficult time. As is often the case, the first step is usually understanding the big picture.
Which Comes First, Divorce or Bankruptcy?
The answer to this question largely depends on the type of divorce. A few marriage dissolutions involve serious assaults or other severe marital trauma. In these instances, bankruptcy can wait. The priority must be on you and your children, even if that means a more difficult bankruptcy later.
However, most marriage dissolutions are slow fade divorces. The couple drifts apart over time. The cumulative effect of many episodes which are individually inconsequential, as opposed to a big blowout, causes the divorce. In fact, by the time one spouse files legal paperwork, the couple has often been separated for months, or even years.
In these situations, filing bankruptcy before divorce is usually a good idea, both financially and emotionally. Financially, divorce reduces the size of the marital estate. So, a subsequent property division is less time-consuming and therefore less expensive.
The emotional benefits might be even bigger. A divorce is no time to deal with relentless creditors. Financial stress, by itself, causes PTSD-like symptoms among about a fourth of Americans. These symptoms are even worse if a divorce is ongoing as well. Additionally, if the spouses can work together during a bankruptcy, or at least tolerate one another, life after divorce is easier. Successful co-parenting requires cooperation and compromise.
Our bankruptcy lawyers normally do not handle family law matters. We focus exclusively on bankruptcy and bankruptcy-related matters. However, many of our colleagues have successful family law practices, so we’re happy to point you in their direction.
Most people opt for a no-fault divorce based on irreconcilable differences. Indeed, that’s the only legal option in many states. So, the choice is not so much the type of divorce, but the type of divorce lawyer. There are no right or wrong choices. They’re just different.
Some family law attorneys are very hard-nosed. Such aggressive representation is usually a good idea if there is a significant amount of property, if the divorce might also involve immigration issues, or there are other unusual features. Such representation is also a good idea if your soon-to-be-ex spouse has his/her own attack dog lawyer.
Other attorneys take the opposite approach. They believe you catch more flies with honey than you do with vinegar. The emphasis on compromise and collaboration often benefits your children, who have already been through enough.
This area is what we do best. Unlike divorce, there are several bankruptcy and non-bankruptcy options for changing families like yours.
Chapter 7 quickly eliminates most unsecured debts, such as credit cards and medical bills. As soon as debtors file their voluntary petitions, the Automatic Stay usually halts adverse creditor actions, such as:
- Wage garnishment,
- Creditor harassment,
- Collection lawsuits, and
Additionally, bankruptcy’s property exemptions prevent creditors from forcibly liquidating your assets. Property protections vary in different states, but they usually apply to your house, car, retirement account, and personal property.
Procedurally, about six weeks after they file voluntary petitions, debtors meet with a bankruptcy trustee (person who oversees the bankruptcy for the judge). Assuming all goes well at this meeting, the trustee normally recommends immediate debt discharge.
Debt discharge eliminates the legal obligation to repay a debt. The collateral consequences of that debt, if any, remain. So, if you were behind on child support and the state filed a lien, you must deal with the lien separately.
The Automatic Stay, property exemptions, and unsecured debt discharge also apply in Chapter 13 bankruptcy. But this form of debt relief is primarily designed for people with past-due secured obligations, like delinquent mortgage payments.
The Chapter 13 trustee helps these debtors set up an income-based repayment plan. This protected repayment period lasts up to five years.
Bankruptcy is difficult enough as a standalone proceeding. Bankruptcy combined with divorce is daunting indeed. For a free consultation with a bankruptcy lawyer, contact Bankruptcy Done Right. We have decades of experience in consumer bankruptcy and related areas.