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Everything You Need To Know About Filing Bankruptcy After Divorce
Although the romantic promises of wedding vows might lead you to believe otherwise, divorces are common life events. Marriages end for a wide variety of reasons. Every year, more than 780,000 people go through the divorce process in the United States.
Even the most amicable divorces can be emotionally and economically difficult. From custody battles to legal hurdles to financial burdens, divorce presents many challenges. Transitioning away from married life can leave you feeling stressed and overwhelmed.
If you are facing financial difficulties after the end of a marriage, you still have options. One possibility is to file for bankruptcy. In some circumstances, bankruptcy offers the best financial path forward after a divorce. For some, declaring bankruptcy can result in a less complicated, quicker, and more cost-effective divorce.
In the following post, we will examine some common types of bankruptcy. We will also discuss the financial and emotional implications for the parties involved.
Reasons People File for Bankruptcy After a Divorce
Oftentimes, bankruptcy becomes necessary after the end of a marriage because of the financial difficulties of transitioning to a new standard of living. Moving from a dual income household to a household with only a single income can be very challenging.
For example, you may be accustomed to dividing bills, car payments, and insurance expenses with another person – in this case, your ex-spouse. After a divorce, you will probably need to fulfill these financial responsibilities alone. The decrease in disposable income after a divorce can make bankruptcy an advantageous choice.
In other cases, one party is liable for debts accrued by the other during the marriage. This type of debt does not vanish after the divorce process is complete. If you are facing debts that your ex-spouse accrued during your relationship, bankruptcy may be right for you.
No matter what your reasons may be, speak with a qualified attorney if you are considering bankruptcy after your divorce.
Common Types of Bankruptcy
If you are thinking about declaring bankruptcy, there are a number of options that you’ll need to think through. The two primary types of bankruptcy that are available include:
Chapter 7 Bankruptcy
This type of bankruptcy is also known as liquidation bankruptcy. When you file for Chapter 7 bankruptcy, the bank will require you to sell certain kinds of assets in order to pay back the debts that you owe.
Typically, you will have to sell off certain kinds of property to qualify. In exchange for liquidating these assets, your unsecured debts will be forgiven. Unsecured debts can include medical and credit card liabilities.
Liquidation bankruptcy does not entail the forgiveness of every kind of debt. For instance, Chapter 7 bankruptcy cannot relieve you of your responsibility for:
Legal fees associated with child support or custody cases
Chapter 7 is an ideal option for those who want a quicker divorce timeline. This type of bankruptcy tends to be completed within six months. This helps to speed along the financial elements of the separation process.
Only certain people qualify for liquidation bankruptcy. If you have enough income to create a reorganization plan through a Chapter 13 bankruptcy, you will be required to take that option.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is also known as a reorganization filing bankruptcy. With this option, you will develop a plan to pay back your debts through monthly installments.
These reorganization plans typically last three to five years. After you have paid your monthly installments for the specified time period, any additional debts will be forgiven. As we mentioned above, you will need to file for Chapter 13 bankruptcy if you can afford this option.
After you have filed for bankruptcy, an injunction will go into effect on your remaining assets. This injunction, known as an automatic stay, protects you from having your assets repossessed. An automatic stay also shields you from most lawsuits.
If you file for bankruptcy before your divorce is final, the automatic stay may affect the ongoing process of property division. Speak with an experienced attorney if you believe bankruptcy may be a good option for you.
The Effects of Bankruptcy After a Divorce
When you are facing large amounts of debt, bankruptcy might sound like a simple and easy solution. Bankruptcy can be the best financial option in some instances.
But there are also some significant costs to filing for bankruptcy. It is important to consider all of the consequences before declaring bankruptcy after a divorce.
Decreased Credit Score
Filing for bankruptcy can significantly affect your credit score, particularly after a divorce. You may feel the impact on your credit score for up to ten years. A lower credit score can make it difficult to gain loan approval, open new credit cards, or purchase property.
There are strategies for rebuilding credit after you have declared bankruptcy. For instance, you can work with a credit union or apply for a secured credit card in order to rebuild your score. But you should have a full understanding of the impact that bankruptcy is going to have on your credit score before you file.
Bankruptcy’s Impact on Your Ex-Spouse
You may also wonder how filing for bankruptcy will affect your ex-spouse. The answer will depend on how your marital assets are structured.
Filing for bankruptcy will not affect your ex-spouse’s credit score at all. This is true even if you had joint debts from the marriage. However, if your part of a joint debt is forgiven through bankruptcy, your ex-spouse may become liable for the entire amount.
While there are many different things that you should keep in mind if you’re thinking about declaring bankruptcy after a divorce, it can be a useful option for some specific circumstances. If you think this option might be right for you, consult with a qualified legal professional as soon as possible.