Filing for bankruptcy allows you to have a fresh start and secure your financial future. A bankruptcy filing helps an individual pay all debts to his or her creditors. However, since bankruptcy laws can be complicated, consulting a reliable bankruptcy attorney before you file is highly advisable.
You must be knowledgeable on what types of debt may be discharged when you file bankruptcy. It is also necessary for you to understand the bankruptcy rules of each bankruptcy chapter, which can help you decide which among the different types of bankruptcy would be the best option for you.
In some bankruptcy cases, some debts are closely intertwined with a divorce proceeding. Such will be the focus of this article.
Litigation over divorce and family law can lead to bankruptcy
Studies on what causes bankruptcy consistently show that along with unemployment and overwhelming medical bills, the financial impact of divorce is one of the most common causes.
Unlike unsecured debt that accumulates quickly as a result of a job loss or acquired medical conditions, most debts arising from divorce are somewhat handled differently within the bankruptcy process. Considering debt-relief through filing a petition in bankruptcy is often a tough decision to make. A lot of consideration should be taken when a debtor is facing debt problems that are primarily caused by a divorce.
Although filing a bankruptcy petition indeed enables an individual to have credit card bills and medical debt discharged, note that there are debts that are not dischargeable. These include tax debt, student loan debt, criminal charges, and fines. Similarly, there are specific regulations for debts arising from divorce cases.
Obligations relating to domestic support
Under bankruptcy law, obligations such as child support and alimony shall not be discharged when you file for bankruptcy.
Note that some debts owed to a third party, while not necessarily a form of direct domestic support, could be treated similarly. In general, if there is a notable difference in wealth, the legal expenses of an estranged partner could be regarded as a form of ‘support’ that must be paid.
If the monthly income of the parties are substantially different and there is disproportionate access to legal counsel, attorney fees can also be deemed as domestic support. This may also include expenses related to child custody evaluation and the child’s safety and other needs.
Nonsupport marital debts
Bankruptcy protection against discharge has been granted to an additional category of debts: non-dischargeable claims from family law litigation. These types of debts are referred to as marital debts, which must result from divorce proceedings or settlements negotiated in the course of litigation.
However, they must not be in the form of assistance that would make them non-dischargeable, to begin with. Additionally, the debts should be payable to the divorced partner. If they are to be paid to other parties, such as former in-laws or credit card companies, such debts are dischargeable.
The bankruptcy discharge given after the completion of the repayment plan for Chapter 13 (reorganization bankruptcy) is generally wider than the discharge in other bankruptcy chapters. Essentially, those who filed under Chapter 13 are entitled to greater debt relief when they repay their debts.
Note that a Chapter 13 file works to make monthly payments over three to five years. If only 50 percent of the unsecured debts are paid through the approved payment plan, the discharge could eliminate what is unpaid, including marital debts.
Selecting a suitable chapter for your bankruptcy case
When considering bankruptcy, it is important to decide what bankruptcy option would offer the greatest relief from your financial problems. If the divorce has resulted in considerable marital debt, debtors that went through a contentious and expensive family law litigation may want to weigh the advantages of a bankruptcy proceeding under Chapter 13.
Also, debtors who fail to fulfill their obligations may look into how a debt repayment plan can help in making payments for child support and alimony arrears. These cannot be forgiven but can be repaid over some time. This means that only current payments for support must be made by the debtor, with the accrued arrears paid off through the scheme.
Bankruptcy is an opportunity to cope effectively with debts. When struggling with debt, careful consideration must be given to selecting the means to get relief, whether through filing Chapter 7 or Chapter 13. Such a decision should be made only after consulting a competent bankruptcy lawyer. He or she will advise you regarding the implications of both bankruptcy law and family law on your circumstance.
Get legal help and assistance from the professionals. Contact us at Phoenix Fresh Start Bankruptcy Attorneys for a free consultation. Call us at 602-598-5075.