Dangers of Divorce Bankruptcy
Because so many people going through divorce are under financial stress, they often think about the possibility of bankruptcy as a way to get control of everything. If you're thinking about bankruptcy, or more importantly if your spouse is, you should know about your rights and responsibilities.
If you and your spouse have a lot of debt between the two of you, it might make sense to file for bankruptcy before starting a divorce action. The benefit is that the two of you will simplify the divorce by clearing out some of your debt. This can make it easier to negotiate how the remaining debts should be divided, and protect you from your spouse's bankruptcy filing down the road. You'll also benefit because the filing and processing of a joint bankruptcy is both less expensive and complicated than filing two different actions.
Also, you and your spouse might want to consider filing a joint bankruptcy before the divorce. Not only will this make the final division of any remaining debts even easier, but filing a joint bankruptcy is cheaper than filing two separate ones.
Two Different Types of Bankruptcy
There are two common kinds of bankruptcy for individuals, Chapter 7 and Chapter 13 bankruptcies. The major difference between them is in the amount of debt that is discharged and what sort of property the debtor is able to keep.
- In a Chapter 7 bankruptcy, the debtor has all debt eliminated – with the exception of court-ordered alimony payments, child support, student loan payments, demands of your Separation Agreement, and any criminal restitution to the court. So long as the court doesn't determine that you are trying to abuse the system, you'll be given a clean slate after you emerge from the bankruptcy mark on your credit report for ten years.
- In a Chapter 13 bankruptcy, the debtor is allowed a combination of lower payments and a longer time to pay while keeping some property to help facilitate income and, therefore, payback. This sort of bankruptcy remains on the debtor's credit report for seven years.
As a debtor filing for Chapter 7, you must pass a "means test" that compares your average income six months prior to filing with the median income established for Massachusetts. Those who fall below the median can file for Chapter 7 bankruptcy, those above only qualify for Chapter 13.
The benefit of both types is that bankruptcy triggers the automatic stay – a provision that eliminates all of the dunning calls and letters from bill collectors.
How to Protect Yourself From a Spouse Filing After Divorce
If your spouse owes obligations to you after divorce, and if there appears to be a good chance that he or she will file bankruptcy, what you need to do is to characterize as much of the obligation as possible in ways that makes it clear that it's intended for support, not property settlement.
Additionally, beware of the spouse who creates credit card debt just prior to divorce (knowing how parties to a divorce action typically share any and all debt), and then tries to file bankruptcy on his or her portion of the debt – leaving you holding the responsibility for the rest. Our attorneys would include a no-bankruptcy stipulation in the decree so you won't end up with ruined credit and gigantic bills.
Learn About Massachusetts Divorce and Bankruptcy - FREE Consultation!
If you are in the divorce planning stages, or in the middle of the divorce process, bankruptcy may be an option. To determine if you qualify for bankruptcy, and if so, which type of bankruptcy is the best option for you, call (800) 763-1030 or e-mail us to schedule a no-obligation consultation at any of our local offices .
Given how divorce can lead to bankruptcy, our attorneys represent men and women in bankruptcy and divorce proceedings, and help when the line between the two becomes blurred.
