Will A Divorce Affect Your Decision To Declare Bankruptcy?
They are two of the hardest decisions you will ever have to make in life – to declare bankruptcy and to get a divorce. What if you have to make the decision to go bankrupt at the same time your marriage is ending? You are most likely wondering if a divorce will affect bankruptcy proceedings, and the answer is yes.
Allocation of Debts
For the most part, married couples share the debts they have accrued together. This can be credit cards, medical bills or mortgage payments. If one of the spouses has lost a job and racked up more debt personally than the other, and if both spouses' names are on the bill, they are both liable for it. It is possible to have your spouse agree to accept responsibility for the debt they have created and this can be put into your divorce decree to make it legal. This doesn't necessarily mean you are in the clear.
If your spouse fails to make payments on those debts for whatever reason, and the debt was created prior to your divorce, the creditors may still come after you for payment. A divorce agreement would protect you in some cases if your spouse had legally agreed to make those payments.
Bankruptcy is a simplified way to wipe out any debts you both have prior to a divorce, but there are some things you should think about. For example, if you own property together, how will a bankruptcy affect the division of that property? You must first check with your state to see whether it's best to file for Chapter 7 bankruptcy, which helps to eliminate all liquid debts such as credit cards or medical bills, or file Chapter 13, in which you can keep property and other assets as long as you are making a certain amount of payments toward your debt.
Before you file bankruptcy in your state, see if the laws will exempt property from being included in a bankruptcy discharge. Your state might allow for a larger exemption amount if you file bankruptcy jointly, meaning you can protect all the property you own. If you are unable to double your exemption in your state, and you have more property than you are allowed to exempt in a bankruptcy, it might be a wise idea to wait to file bankruptcy until after you file for divorce and the property is divided.
In order to file for Chapter 7 bankruptcy, you must maintain a certain level of income and not go over it. Each state has differing laws on how high or low your income must be, so check this out before filing. If you are filing for joint bankruptcy before your divorce, your combined income might be too high to file for Chapter 7. Contact a lawyer like John D Rouse for more information.