BANKRUPTCY AND DIVORCE

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It is not uncommon to file bankruptcy after a divorce. You or your ex-spouse may not be able to keep up with payments on a single salary. It happens, it’s a legitimate reason to look for relief through bankruptcy.

Money is a big stress factor in many relationships. Sometimes a couple that has money problems will think that the answer to their problems is divorce. Each spouse is likely to believe that the other is mostly responsible for the couple’s money problems. This belief may or may not be true. One thing is true, you can divorce your spouse, but you can’t divorce the debts incurred during your marriage.

When either party contemplates bankruptcy, one consideration is the timing of the filing and whether the parties should file a joint bankruptcy before or during the divorce, or an individual bankruptcy before, during, or after the divorce. Your creditors are not part of the divorce, and the family court cannot alter, modify or revise the contract between debtors and creditors.  Any joint debt discharged by one party will leave the other party solely liable, exposed to collection efforts and law suits, and will often force the other spouse to repay or file bankruptcy.

Both spouses are responsible for the debts incurred during the time of the marriage. Your divorce settlement will divide up the debts, assigning responsibility for some to one spouse and some to the other. But that divorce settlement is between you and your ex-spouse. It doesn’t bind your creditors, who can collect the debt from either of you. This means if your ex-spouse doesn’t pay his or her share of the debts, the creditor can come after you for payment.

HOW CAN I GET STARTED?

Call our office today and set up your free consultation with an attorney. We will discuss which chapter of bankruptcy is best for you.

Bankruptcy can mean different things to different debtors. There are several types of bankruptcy chapters provided under the U.S. Bankruptcy Code, each with its own rules and procedures.

The most common filings for bankruptcy are Chapter 7 and Chapter 13. Chapter 7 will wipe out all your unsecured debt (credit cards, medical bills, utilities, etc.). You can also keep your house and vehicle in Chapter 7, as long as you are or can get current on payments. Chapter 7 is a straight bankruptcy. This will stop all collection proceedings including phone calls, mailings, garnishments and court proceedings. Most bankruptcy filings in the U.S. are Chapter 7. Under a Chapter 7, any debt incurred to a spouse or former spouse that is incurred during a divorce by agreement, decree or court order is not dischargeable.

Chapter 13 is a repayment plan. It is referred to as a wage earner plan. You must have a reliable source of income to repay all or a portion of your debt. Chapter 13 will stop a foreclosure or repossession as well. It is designed to help you retain your home or vehicle if you are behind in payments. You will repay 1% to 100% of your unsecured debt, depending on your individual situation. Repayment will  last a minimum of three and maximum of five years. During this time it will be up to the creditors to file claim in order to be paid during the case.  Under a Chapter 13, the debtor may receive a discharge from obligations incurred as part of the divorce if certain conditions are met.

HOW CAN I GET BACK ON TRACK?

Once you have fully discharged, rebuilding credit can sometimes seem like an overwhelming task. But it’s important to realize that there is life after bankruptcy. Repaying your existing bills as agreed will be one of the single most powerful things you can do to restore your finances and your credit.

FREE CONSULTATION

Contact our office at 513-752-3900 to schedule your free consultation to see if bankruptcy will give you the financial relief you are looking for.

BANKRUPTCY- SHOULD YOU FILE BEFORE OR AFTER DIVORCE?

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We are attorneys located in Eastgate and Middletown, Ohio. Since 1992, Bankruptcy has been the main focus of our practice.

If you are considering bankruptcy contact our office for a free consultation.  At this consultation our attorneys will analyze your individual situation.

Your spouse does not have to file bankruptcy.  You can file bankruptcy without your spouse, but whether they should file with you depends on the circumstances. Here are some of the most common situations in determining whether to file with your spouse.

All (or Most) Debts are in One Spouse’s Name

This happens often either in a relatively new marriage, or one in which one of the spouses had operated a failing business. The person with little or no debt doesn’t want to participate in filing bankruptcy if it’s not necessary to do so.

In a newer marriage, the couple may realize that the debts of one spouse is hurting their joint financial lives. Possibly the financial stress is jeopardizing the marriage itself. That is especially true if the spouse with the debts either was not candid about the amount of debts he or she was bringing into the marriage, or has continued to use credit within the marriage without the full knowledge of the other spouse.

Whatever the context, determining whether to file bankruptcy for just one spouse requires a thorough analysis as to who is liable on each of the debts.  If there is joint liability, the creditor can pursue the non-filing spouse for the full amount.

It takes some analyses to determine whether a spouse is or is not liable on a debt.  Being an authorized user sometimes creates liability, and sometimes doesn’t. You can discuss this at your free consultation.

Preserving the Other Spouse’s Credit Record

A common reason given for one spouse not wanting to file is to protect his or her credit record. That’s a sensible enough goal. And not only for the non-filing spouse. The couple could benefit from the non-filing spouse’s access to credit on behalf of their household. That non-filing spouse may help the filing spouse re-establish his or her good credit through co-signing of new debts , for example.  Many times when one spouse has a small amount of debt, we may advise not to join the bankruptcy.

But be careful with assumptions about keeping the fling spouse’s case out of the non-filer’s credit record. This is especially if you have a joint debt or two, including ones that you intend to continue to pay and keep “outside the bankruptcy” case, such as a home mortgage or vehicle loan. Although credit reporting agencies are not supposed to refer to a co-debtor’s bankruptcy filing in the non-filer’s credit reports, don’t simply assume that will happen appropriately.

So it’s all the more important for the non-filing spouse to review his or her credit report before the other spouse’s bankruptcy is filed and then very regularly thereafter to make sure there’s no reference, directly or indirectly, to the bankruptcy case.

THINKING OF DIVORCE

Bankruptcy can be good financial planning when anticipating divorce.  If it’s clear, both that you will be getting divorced, and that you need the financial relief of a bankruptcy, then which should come first?  If the bankruptcy is first, should you file with your spouse or not?  Most of the you should file together.  You save on filing and attorney fees, and you have less to argue about (so you spend less on legal fees) in the divorce.  But, this isn’t always true.

The overly simplified answer is as follows:

  • Do not file a joint Chapter 7 “straight bankruptcy” case with your spouse in anticipation of a divorce without BOTH of you getting independent legal advice from separate attorneys.
  • In some situations, it is not in one or the other’s interests to file jointly.
  • In virtually NO circumstances would it make sense to file a joint Chapter 13 case in contemplation of a divorce—a Chapter 13 take three to five years to complete, and at the time of your divorce we would have to turn that case into two separate Chapter 13 cases, or into two Chapter 7 cases.

MORE INFORMATION

Contact Keegan & Co Attorneys today for your free consultation 513-752-3900 at one of our office closest to you: Eastgate or Middletown. Free parking. Convienent appointment times. Fair fees. Our office has been helping the people of Greater Cincinnati since 1992. Caring and knowledgeable lawyers.