Many divorces occur due to the financial stress a couple experiences, so it should come as no surprise that many couples considering divorce are also thinking about bankruptcy. In many cases, it makes sense to pursue a bankruptcy prior to a divorce. It is often less costly for couples to file for bankruptcy together, and often the bankruptcy eliminates property and debt that would otherwise have to be addressed in the property settlement agreement.
If both parties agree that a bankruptcy is inevitable, and can work together through the bankruptcy process, it can behoove the couple to pursue bankruptcy proceedings prior to divorce. It is important to understand that if one party chooses to enter bankruptcy proceedings, those debts may then fall upon the other party if they were entered into mutually. The divorce court can assign that debt to an individual, but that does not change the agreement entered into with the creditor. The only way for both parties to release the debt is through a joint bankruptcy.
Although much debt can be discharged through bankruptcy, it will not affect child support or spousal support obligations. Individuals should not enter into bankruptcy in an effort to get relief from support orders. That does not mean that divorce is a bad option, however, especially if both parties carry significant debt and few assets.
Individuals considering a bankruptcy should understand that any debt they assumed as part of the divorce cannot be discharged through a Chapter 7 bankruptcy. It can only be discharged through a Chapter 13 bankruptcy, in which an individual assumes some of the debt through a payment plan. That’s why it is important for both parties to set aside their differences and work together, especially if they intend to pursue bankruptcy.
Will I Be Responsible for My Spouse’s Debts if I Do Not Declare Bankruptcy?
Many individuals rightfully fear that they will be held responsible for their spouse’s (or former spouse’s) debts if they do not file for bankruptcy. If the debts were incurred during the marriage, even if they solely benefitted your spouse, you may be held responsible. That’s why it is critical to hire an experienced Massachusetts divorce attorney to represent you legally and manage the financial implications you may face.
My Spouse Makes More Money, So We Cannot File for Chapter 7 Bankruptcy. What Can I Do?
In some cases, you and your spouse may, combined, not qualify for Chapter 7 bankruptcy. Separately, however, you may be able to pursue a Chapter 7 filing. If your spouse earns significantly more than you, and you want to file for Chapter 7 bankruptcy, it may make sense to wait until after your divorce is complete. It is important to speak with a bankruptcy attorney to determine your best method of filing.
We Started to File for Divorce, but Now We Are Pursuing Bankruptcy. What Should We Do?
Filing for bankruptcy puts an automatic stay on the divorce proceedings. That does not mean, however, that the court cannot establish support payments or that the support can be put on hold. It simply allows for a period of time while the couple can proceed with the bankruptcy and then revisit the divorce proceedings at a later date.
When a couple seeks divorce and one or both parties believe that bankruptcy may be in their future, it’s critical to meet with an experienced Massachusetts divorce attorney right away.
Couples pursuing or even considering both divorce and bankruptcy should meet with both an experienced family law attorney and a bankruptcy attorney prior to proceeding with either. Since no two cases are exactly the same, it is critical to seek advice from practitioners who understand how bankruptcy and divorce can affect each other. The advice and guidance may save you thousands! Contact Damian Turco today to learn more about how bankruptcy may affect your divorce case.