Financial stress is one of the leading causes of divorce, and divorce increases financial strain by splitting income and assets into two separate households. So, it’s no surprise that divorce often follows bankruptcy or vice versa. Unfortunately, when marital stress is coupled with financial stress, decisions about how best to address the more practical issues are often influenced by emotion. Too often, that leads to faulty decision-making that comes back to haunt one or both partners.
If you’re considering both divorce and bankruptcy or have filed for divorce and are considering bankruptcy, it’s important to fully educate yourself as quickly as possible to avoid unpleasant surprises. A free consultation with a local bankruptcy attorney can be the best starting point. Regardless of whether and when you and your spouse decide to file for bankruptcy, having a clear plan and understanding how it will play out will help you make educated decisions as you negotiate other aspects of your divorce case, such as spousal maintenance and division of debts and assets. And, having worked through the financial issues will help inform your plans for the future, since you’ll have a better idea of your future financial obligations. Below are the top 4 bankruptcy and divorce mistakes.
Filing for Bankruptcy at the Wrong Time
The more common mistake with regard to timing occurs when one party wants to file bankruptcy, but decides to postpone until after the divorce is final. While filing pre-divorce isn’t the right move for everyone, it can often save both time and money–particularly when the parties have significant joint, unsecured debt and are eligible for Chapter 7. A married couple may also be able to protect more property through bankruptcy exemptions than one or the other filing separately could. In other situations, though, holding off may make sense. For example, a Chapter 13 case involves payments spanning three to five years, so commencing a case with divorce on the horizon will rarely be the right move.
The best approach to bankruptcy when divorce is in the mix depends on a wide range of factors, and should be discussed with both your divorce attorney a qualified local bankruptcy attorney before you make any decisions. Regardless of whether or when you and your spouse decide to file for bankruptcy protection, having a clear plan will help in negotiating other aspects of your divorce case, such as spousal maintenance and division of debts and assets. And, a clearer understanding of your ongoing financial obligations will help you make good decisions about things like your living arrangements after divorce.
Letting Emotion Dictate Your Decisions
The period leading up to and during divorce can be emotional, contentious, and confusing. Too often, a divorce case ends up costing both spouses more than is necessary, both economically and in emotional energy. With bankruptcy in the mix, the opportunities for anger-driven financial mistakes are magnified. Remember that while your marriage will soon be over, the financial impact of the decisions you make now could affect your lives and your children’s lives for years to come. Though it isn’t always possible, working together with your spouse to resolve outstanding debt problems through a solution such as a joint Chapter 7 bankruptcy case is often the best answer from a practical, economic standpoint.
Before you decide you “just want to get it over with” or make financial decisions designed to hurt your spouse, make sure you have a thorough understanding of the short and long term effects your decisions will have on you and the rest of your family.
Assuming that One Party Filing Bankruptcy Wipes Out Debt
Many people misunderstand the impact of a divorce decree on financial obligations. In short, although the divorce court enters orders requiring that the husband be responsible for the outstanding balance on the Visa card and the wife the balance on a personal loan, those orders don’t affect the original creditor’s rights. The credit card company isn’t a party in your divorce case, and the divorce court has no authority to undo your contract with the creditor. So, even though the divorce court order says “husband pays the Visa bill,” the credit card company can still pursue payment from the wife–even file a lawsuit against her.
Bankruptcy of one party doesn’t change that, if both spouses were obligated on the debt. So, generally, if the husband files bankruptcy alone–before or after the divorce–the credit card company won’t be able to pursue him directly to collect that unpaid credit card balance. But, they will likely still be able to pursue payment from the wife. And, depending on the terms of the divorce decree, she may in turn be able to pursue reimbursement and other costs from the husband.
In short, it’s best for everyone to have a clear understanding of how bankruptcy will play out before taking the next step.
Misunderstanding the Impact of Bankruptcy on Domestic Obligations
Due in part to the emotional element discussed above, some people preparing for divorce are inclined to schedule a bankruptcy filing at the time it will most hurt the other spouse. For example, it is all too common for one spouse in a contentious divorce case to secretly plan to file for bankruptcy, aiming to leave the other spouse holding the bag on joint debt or to avoid payment of support obligations to the other spouse. But, some divorce-related obligations are non-dischargeable in bankruptcy.
Unfortunately, the states in which the Bond & Botes law offices are located tend to have some of the nation’s highest divorce rates. But this doesn’t have to be the case. Bond & Botes attorney Brad Botes believes that he has saved many marriages during his thirty years plus of practicing bankruptcy law. “My clients come into my office with their marriages on the rocks. Their wages are sometimes being garnished. Perhaps they face an imminent foreclosure or repossession. The bankruptcy laws allow me to stop all of these things almost instantly.” “Once the bankruptcy is filed, a tremendous burden is taken away from my clients. They no longer have the weight of the world on their shoulders. The bankruptcy may give them a chance to save their home, car and most importantly – their marriage.”
Do you have questions on bankruptcy or divorce? Contact an attorney today
If you’re in the process of divorce or considering divorce and have serious debt problems, it is in your best interest to talk to an experienced local bankruptcy attorney before making any decisions about how best to proceed. You can schedule a free consultation with one of the knowledgeable bankruptcy attorneys at Bond & Botes by calling 877-581-3396 or filling out our contact form. We have offices in Alabama, Mississippi, and Tennessee.
Brad Botes is a principal of each of the Bond & Botes Law Offices throughout Alabama, Mississippi, and Tennessee. He holds a Bachelor of Science from the University of North Alabama, and a Juris Doctorate from Cumberland School of Law at Samford University. He and his team of bankruptcy lawyers have spent over 30 years guiding people through financial challenges. Read his full bio here.