There are different debt settlement options that one can choose from, depending on the types of debt and circumstance. Filing for bankruptcy enables a debtor to repay his or her debts and even have some of them discharged. However, it would be stressful to come up with a bankruptcy filing and a payment plan without any legal help. Consulting a bankruptcy attorney will enable you to know how to file and understand the process of declaring bankruptcy. Note that bankruptcy law is something you need to take seriously. Even more so if you are simultaneously considering divorce.
A married couple planning to get divorced may need to file a bankruptcy petition. Some opt to file bankruptcy before the divorce process so they can jointly file, have their debts discharged, and minimize legal fees. On the other hand, in some bankruptcy cases, couples choose to file and go through the bankruptcy process separately. They opt to file a bankruptcy petition after completing the divorce process as this will reduce their total income amount. Doing so makes it easier for them to pass the bankruptcy means test and qualify for filing Chapter 7.
If the couple is eligible for liquidation bankruptcy, it might be better to file at the bankruptcy court before filing a divorce petition. A bankruptcy Chapter 7 would take three to four months to complete. On the other hand, if the couple is considering bankruptcy under Chapter 13, it might be advisable to go through divorce proceedings before filing a reorganization bankruptcy. This bankruptcy proceeding usually takes three to five years.
Division of debt and property
As it has to be brought to court and with all the relevant paperwork filers must fill-out, the bankruptcy procedure can be quite complex.
Bankruptcy exemptions may vary according to state laws. This is another reason why it is important to decide if it would be best to file for bankruptcy while processing a dissolution of marriage. A couple who filed a joint bankruptcy petition, for example, may benefit from increased exemptions in certain states. If you possess a significant amount of assets, it may be advantageous to file before going through a divorce agreement. Note, however, that if you proceed with a declaration of bankruptcy before getting divorced, the automatic stay delays the division of assets in the divorce settlement.
In contrast, if your state does not permit double exemptions, you might have to declare bankruptcy after processing your petition for divorce. It will enable you to use exemptions for the properties you obtain after the division of assets.
Be mindful that in a divorce case, the distribution of debts would not affect the obligation of each spouse to a certain creditor. If a spouse was not able to pay back, the debt collector may try to seek repayment from the spouse that such debt was not awarded to. To avoid this kind of problem, you may want to wait for a bankruptcy discharge before you file for divorce.
Chapter 13 bankruptcy proceedings during a divorce
A lot could happen in three to five years, which is the duration of a bankruptcy declaration under Chapter 13. Given a divorce, deciding on the division of payments under a repayment plan can be difficult. As such, it is vital to get in touch with a bankruptcy lawyer early on.
Expenses related to the divorce can also affect your ability to meet your required monthly payments. You may need to petition the court to reduce the said amount. Couples may also consider switching to Chapter 7, although this can result in the loss of personal property.
Seek advice from bankruptcy lawyers to help you decide and weigh the pros and cons of filing bankruptcy while getting a divorce. Contact us at Phoenix Fresh Start Bankruptcy Attorneys for a free consultation.