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How a Bankruptcy can Affect your Divorce

Posted by on Jul 20, 2017 in Bankruptcy and Divorce | 0 comments

You may be bankrupt because of many reasons, like when you have made poor financial decisions. You may want a divorce because of many reasons, like when you and your partner have drifted in terms of love and priorities. But what if you want to file both for bankruptcy and divorce? It may be a legal nightmare.

According to the website of Marshall & Taylor, P.C., divorce is already a complicated process, as it may involve a variety of legal issues such as alimony, child custody, and division of property. But it becomes even more complicated when a bankruptcy has been put into the mix.

Firstly, the combination of bankruptcy and divorce may be too much of a financial strain for the couple because of the legal fees. Secondly, the legal complications of bankruptcy may make it harder to come up with divorce agreements. After all, the creditors have no legal part in your divorce, so somebody must still pay them no matter what.

It should be determined what kind of bankruptcy has been filed, because the difference in the kinds of bankruptcy can be a factor in the divorce agreements. The website of Erin B. Shank, P.C. mentions two kinds of bankruptcy designed for regular people – chapter 7 and chapter 13.

In chapter 7 bankruptcy, the debtor’s assets are sold and its proceeds go to the creditor. In chapter 13 bankruptcy, the debtor’s payment plans are revised for more financial freedom. Either kind of bankruptcy does not allow the discharge of domestic support obligations related to divorce, such as alimony and child support.

But the difference in chapter 7 and chapter 13 may influence other aspects of divorce, like debt settlement. For example, if you have debt under a marital settlement, chapter 7 bankruptcy cannot discharge it, but chapter 13 can, as long as it doesn’t involve domestic support obligations.

Due to these complications about debt settlement and domestic support obligations, sometimes it is better to just file for joint bankruptcy before even thinking about divorce, because it is easier to clear debts and divide properties this way, and no domestic support obligations may be put at stake. But there are instances where it just cannot be avoided, like when a medical condition suddenly forces one party to file for bankruptcy even while on the middle of a divorce process.

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