How Divorce Can Affect A Bankruptcy

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How Divorce Can Affect A Bankruptcy

The decision to file for bankruptcy can be stressful enough.  Having just experienced a divorce can make the process more difficult. There are many things to consider when filing for bankruptcy and how you proceed can affect the outcome of your bankruptcy case.  In some cases, it may better to file for bankruptcy before you file for divorce. Due to the many differences in bankruptcy laws per state, filing for bankruptcy together or separate could be affected by these differences.  

Bankruptcy In Marriage

One of the biggest reasons to file for bankruptcy before you file for divorce is the ease of the transition into divorce. For any couple filing for divorce, an agreement about how the debts and assets will be divided must be reached. Bankruptcy can greatly complicate this process and make splitting your affairs more difficult.

When filing for bankruptcy in marriage, filing together or separate can also impact your bankruptcy case. Filing for bankruptcy separately can protect the credit standing for the non-filing spouse. The spouse that files for bankruptcy separate from their spouse may obtain a discharge of their personally liable debt and their portion of a joint debt.  For couples that have an unbalanced debt share, filing separately can be more beneficial than filing together. If one spouse accrued more of a debt burden than the other spouse, their debts can be eliminated without the non-filing spouse risk the debt liability or credit impact of a bankruptcy.

For couples that have more shared debts, filing for bankruptcy together may result in better bankruptcy protection than filing separately. Filing for bankruptcy together in marriage can protect more of the assets from seizure and liquidation than an individual filer. However, you should consider whether filing for bankruptcy together in bankruptcy would prevent you from financially qualifying for bankruptcy protection. If your combined income is above a specified amount, you may not be eligible for debt relief through bankruptcy.

Bankruptcy After Divorce

The bankruptcy process can complicate how debts and assets are divided in a divorce. All property is considered community property in marriage. Any property that is vulnerable for seizure during bankruptcy may be taken from the non-filing spouse after the divorce.  If a divorcee files for bankruptcy, any non-exempt property may be seized by creditors; regardless of who is in possession of the property after the divorce. Dividing up assets, and protecting those assets, is far more difficult if the bankruptcy is filed after a divorce.

For any debts accumulated on a joint account, both individuals assume equal responsibility of those debts, if they were acquired during marriage. If a divorcee receives a discharge to a jointly held debt after a divorce, the non-filing individual may be left solely liable for the debt after a divorce.  For the divorcee that is court ordered to provide spousal or child support payments, these payments are not eligible for bankruptcy protection. One spouse may find their assets seized or wages garnished to satisfy domestic support payments after a divorce.

There are different benefits and risks associated with filing for bankruptcy together, separate, married or divorced. Couples considering bankruptcy should contact a qualified bankruptcy attorney to help them make an informed decision.

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Christopher understands that financial hardships can affect honest, hard-working people. Growing up in a very blue collar family and rural area of Indiana , money didn’t always come easy for his parents. The struggles his family faced in his childhood made a significant impression on his business philosophy today. As a Fort Worth bankruptcy attorney his practice has given him the opportunity to directly impact the lives of many people. For more information visit:
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