Your family routine and general lifestyle will inevitably change once the marriage dissolves. When parents separate it produces a great deal of stress, uncertainty, and confusion for every member of the family. Based on the situation, it affects everyone differently. There are usually a number of things to consider, including child support and custody, division of property and assets, etc. But, most couples don’t consider how their divorce will affect their overall debt.
However, consumer bankruptcy could be a good solution for heavy debt. Several factors need to first be considered. It may be in your best interest to consult someone knowledgeable in both areas of divorce and bankruptcy that can offer you a wealth of information. In doing so, you’ll make better informed choices about how to file and how bankruptcy will ultimately impact your marital debts in addition to child support and other family concerns.
Should You File for Bankruptcy or Divorce First?
If you and your ex are on fairly good terms with one another, consider filing for bankruptcy before you start the divorce proceedings. All your debt will be handled under one case for bankruptcy by filing jointly. This way you can eliminate your joints debts all at once and also possibly increase the amounts of your exemptions. Filing for bankruptcy first is also useful if just one spouse generally makes the majority of the money since it will enhance the odds of qualifying for Chapter 7 for that particular spouse. The bankruptcy process will also get rid of any contracts that neither spouse wants, such as expensive auto loans or home mortgages that are now underwater.
Filing for Chapter 13 and Chapter 7 Bankruptcy
Essentially, there are two primary bankruptcy chapters that consumers can file for – Chapter 13 and Chapter 7. Chapter 13 involves establishing a repayment plan that requires the debtor to make a payment each month over the course of 36-60 months. At the end of this period, most remaining balances are automatically discharged after the repayment plan has ended. On the other hand, Chapter 7 is a much shorter process that enables the debtor to discharge the majority of their debts upfront.
Deciding which chapter you need to file should be discussed with an experienced bankruptcy law attorney about which chapter will award the debtor their new financial beginning so they can finally be financially free once and for all. Some important considerations should include the income of the debtor, secured debt status, property settlements dischargability, child support, and the overall timing as well.
What is an Automatic Stay?
If either you or spouse decides to file for bankruptcy upon filing for divorce or before your divorce is final, you will automatically become a debtor according to the Bankruptcy Code and therefore an automatic stay is readily created to ensure that all debts are collected and no property is transferred.
An automatic stay creates a temporary pause in the proceedings of your divorce concerning your debts and division of property. A good family law attorney that fully understands the bankruptcy laws will protect their client throughout the divorce proceedings while the bankruptcy is pending. It’s also important that the attorney knows which orders can potentially be entered by the court while filing bankruptcy and which orders go against the federal laws overall.
What About Marital Debt?
If either spouse is thinking about filing for bankruptcy, another important consideration to take into account is the actual timing of the filing and if both spouses should file jointly before or during their divorce. It may be better to file as an individual during, before, or following the divorce. Also, your financial creditors aren’t considered part of your divorce and the family court isn’t allowed to modify, alter, or make revisions to the contract between creditors and the debtors. Therefore, any debt that’s jointly filed that’s ultimately discharged by one spouse will leave the other spouse completely responsible and subject to law suits and collection efforts, typically forcing the other party to file bankruptcy or repay the debt.
According to Chapter 7, all debts incurred to either a former spouse or current spouse that’s incurred while going through a divorce, a court order or decree isn’t dischargeable. Therefore, if any assets are actually recovered, those debts are typically paid before the majority of the other financial obligations. According to Chapter 13, if certain conditions are met, the debtor can obtain a discharge from incurred debt as a part of their divorce.
What About Child Support and Alimony?
In no way does filing bankruptcy affect child support or alimony payments, which are sometimes referred to as domestic support obligations in some cases. Furthermore, support arrearages aren’t considered dischargeable. But, the automatic stay could potentially cause a delay concerning how support arrearages are collected throughout the duration of your bankruptcy.
Use a trustworthy NYC Bankruptcy Law Firm in order to help you choose the best options to take for both you and your family during these trying times.