Divorce and finances, bankruptcy may offer a fresh start

February 16, 2013

Divorce and finances, bankruptcy may offer a fresh start

Article provided by John Christopher Robinson
Visit us at http://www.debtfreeky.com

When a couple gets a divorce, most property accumulated by the couple is divided. This includes any debts accumulated by the couple. This can lead to financial stresses in a number of ways. The most common stressor comes from the fact that the same amount of money now needs to support two households. Additional issues can arise if accounts were not properly managed during the divorce process.

If, for example, confusion existed on who should pay joint bills like a mortgage payment, bills may have gone unpaid. As a result, the late payment could reduce both spouses' credit ratings. This could also lead to late fees and other additional costs that can make already difficult financial times unmanageable.

In some cases, filing for bankruptcy during divorce can present an opportunity for a financial restart for those going through a divorce by removing the obligation to pay for certain debts.

How divorce impacts debt

There are many issues to review when considering filing for bankruptcy before or after a divorce. Three important areas include:
-Joint debt
-Court ordered payments
-Property settlement payments

It is important to note that a divorce decree does not remove an obligation to pay back debt. As a result, if one ex-spouse files for bankruptcy and receives a discharge for joint debts, the other spouse may remain liable to repay that debt.

In addition, court ordered support payments generally cannot be discharged in bankruptcy. This means spousal support and child support payments often remain intact even after a bankruptcy petition has been granted.

If granted, bankruptcy can also impact property settlement payments. How these payments will be impacted depends on the type of petition that was granted. If a petition for a Chapter 7 bankruptcy is granted, the payments often remain in place. However, if the applicant received a Chapter 13 petition the payments are generally discharged. If the payments are discharged, they no longer need to be paid.

When to file for bankruptcy

Determining the right time to file for bankruptcy relief can be difficult. In some cases, it may be best to file before divorce, in others it can be better to file after the divorce is finalized. Some people need to deal with immediate financial concerns, like the potential foreclosure of a home, and file before divorce. Others find it easier to pass the "Means Test," a test the bankruptcy court uses to review the applicant's income before granting bankruptcy protections, when they are single and need to report only one income.

Navigating through the various considerations involved in bankruptcy during or after a divorce is a complicated process. If you are considering filing for bankruptcy, contact an experienced bankruptcy attorney to discuss your situation.