Divorce is an emotional and painful process. If bankruptcy is added to it, the process becomes more traumatic. If a couple decides to divorce, their finances can be affected, since divorce is commonly viewed as the primary cause of bankruptcy. So, if a couple intends to file for divorce and bankruptcy, several choices are available for them. However, the following factors should offer guidance during the process.
Avoid Filing for Divorce and Bankruptcy Simultaneously
For the sake of straightforwardness, two legal issues should not overlap with one another. Generally, individuals opt to file bankruptcy before filing for divorce based on several logical facts. Once a person files for bankruptcy based on chapters 7 and 13, an automatic stay is placed. The automatic stay prevents creditors from contacting a person. Furthermore, a person’s assets and properties are also frozen. This may affect a person’s project. For instance, according to the September survey, 80% of homeowners usually stick to the budget set for home improvement or repair projects, while 75% have funds set aside for this purpose. This allows the bankruptcy court to start sorting out debts and using assets to compensate for some debts.
In the United States, there have been 143,105 assets with foreclosure filings in the past quarter. So, if you file for divorce and bankruptcy simultaneously, the automatic stay makes it almost impossible for the family court to access and divide the properties since they are placed on hold.
The Matter to File First Depends on a Person’s Situation
Although a person should not file for bankruptcy and divorce simultaneously, the mandate to choose what comes first lies on the person. However, it would help if you considered some things before deciding on which to go first. For most people, bankruptcy is an option between chapters 7 and 13. If you and your partner are on friendly terms, it’s advisable to begin filing for bankruptcy since it may prevent you from paying a joint debt. Besides, it also enables you to share filing fees and attorney’s costs.
Chapter 7 is Best For a Faster Divorce
One of the advantages of chapter 7 is the timeline of the procedure. The chapter removes all dischargeable debt, usually within three to six months, enabling a person to file a divorce immediately if you opt to file a bankruptcy filing. Chapter 13 bankruptcy establishes a three-to-five-year payment program rather than eliminating debt. This may probably delay the divorce process. If a person is involved in chapter thirteen bankruptcy and decides to file for repayment, they may restructure or cancel the bankruptcy strategy.
Some Debts are Not Included in Bankruptcy
If a person follows the path of eradicating all debt, they must note that not all debts can be discharged or eradicated. Debts deemed non-dischargeable can’t be forgiven in a bankruptcy case, and a person is still liable for paying them back. Typical forms of non-dischargeable debts include:
- Fines owed to government agencies
- Child support
- Court fines or penalties
- Student loans
- Lawyer charges for child support or custody cases
In chapter seven, bankruptcy, dischargeable debts are viewed as an honor more than a right. Therefore, debtors must adhere to the rules outlined in the Bankruptcy Code for the bankruptcy court to accept a discharge. If the debtor doesn’t adhere to these rules, the court may reject their request for debt discharge. The chapter seven discharge may be renounced and cause bad news if the debtor:
- Doesn’t provide tax documents requested
- Fails to disclose assets to defraud creditors
- Destroys financial records and books
- Doesn’t complete a compulsory credit counseling lesson
- Violates a court order
If a Person Files Bankruptcy During a Divorce Case, It Is Necessary to Hire a New Lawyer
If you hire a joint lawyer with your spouse, you should consider searching for a new lawyer since the divorce lawyer cannot represent the two cases. This is because advocates are prohibited from representing clients with conflicting interests.
Filing for bankruptcy causes conflicts for the lawyers since their clients become opponents on another legal issue. It would help if you considered the above facts when filing for divorce and bankruptcy.