One of the most common reasons for getting a divorce is due to money. You may have a lot of debt and very few assets as a couple, which may lead to filing for bankruptcy before you get divorced. Here are some key things to keep in mind when going through both of these legal processes.
Focus on Your Unsecured Debts
For spouses not on the best terms, negotiating the unsecured debt before the divorce occurs is crucial. Unsecured debtcan include student loans, back taxes and even child support from previous marriages since these are debts that you cannot discharge during a bankruptcy. Chances are that you will assign responsibility for those debts to each other on a case-by-case basis.
For instance, one spouse may have incurred student loan debt to advance their career to make more money for the family. However, that debt may have only been necessary because the other spouse needed to stay at home and take care of the kids.
You must look at this debt objectively and decide who will be responsible for paying it. Be sure to get this agreement in writing as part of the divorce process to ensure that each person holds up their end of the agreement.
Know When to Consider a Joint Bankruptcy Filing
You will have the option to file for bankruptcy jointly as a married couple or to file separately later as a single person. The biggest advantage you'll see by filing together is cost savings.
When filing as a single person, you are essentially paying full price for both you and your spouse to go through the bankruptcy process. Filing as a married couple means that you can split the legal cost between the two of you. You do not even need to get separate lawyers to handle the bankruptcy, just as long as they are not working for you or your spouse for the divorce as well.
Filing together means that all of your joint unsecured debts will be discharged, giving you a financial fresh start from credit card debt and things of that nature. However, those secured debts will be combined and turned into a debt repayment plan.
A payment plan allows you to slowly pay off those debts over a period of time, while simplifying the process by having the money disbursed for you.
Know When to Consider a Single Person Bankruptcy Filing
An unforeseen problem with Chapter 7 bankruptcy is the income requirements. It's possible that you and your spouse make too much money when combined to qualify for using Chapter 7 bankruptcy.
Keep in mind that you can choose to file as a single person once you are divorced. You may discover that you will then qualify for Chapter 7 because the income requirements are much lower.
Understand the Risks of Missing Payments
It can be a tricky situation when paying back debts that are jointly owned once a divorce is finalized. If one person is responsible for paying back credit card debt on a joint account, missing a payment will still affect both people.
Debt that belongs to a spouse could still be your problem if they are unable to make payments on an account you opened together when you were married.
For Chapter 13 bankruptcies with a debt repayment plan, check in with who is responsible for making the payments to ensure that payments were made. If someone does miss a payment, you can extend your plan's repayment schedule to make up for the missed payment.
To help navigate this difficult time, know that the Law Office of Cowan & Brady specializes in all kinds of bankruptcy situations.