Disagreements over finances are one of the most common reasons for a couple to file for divorce. Sometimes the bitter conflicts involve reckless spending, while at other times, it is mounting credit card debt.
Each couple’s circumstances will be different, but these kinds of issues can irreparably damage a relationship. Sometimes it appears that the only thing the couple agrees upon is that they will need to do both.
One affects the other
It is essential to think strategically about how to best handle these interrelated matters:
- The order: Generally, filing bankruptcy may be the best first step because it freezes all assets and puts an automatic stay on creditors.
- Jointly vs. separately: It may make more sense to bankruptcy jointly to protect certain assets.
- Chapter 7 and 13: The couple or individual eligible to file Chapter 7 will have more assets liquidated, but all can discharge the unsecured debt in 90 days more. A Chapter 13 restructuring enables couples to keep more assets, but the restructuring and payment plan could go on for three to five years. This latter approach would also make the divorce more complicated.
- Non-dischargeable debts: Some debts will remain after the bankruptcy, so the couple will need to determine responsibility for paying them off. Also, Bankruptcy Code classifies divorce settlements as nondischargeable, so the divorce agreement must be honored even if a spouse subsequently files bankruptcy.
Of course, everyone’s situation is different, so determining which options work best for you is best determined by professionals who understand the interplay between bankruptcy and divorce.
It is key to find someone who understands both
Due to the pandemic, some experts predict that the number of people filing bankruptcy will increase, while others say the same about divorce as the pandemic comes to an end. So, it seems likely that this also means an increase in the number of couples doing both in 2021.
Fortunately, some law firms already handle both types of cases. It can be a real asset in ensuring that both issues are addressed efficiently and effectively.