Law Blog

BANKRUPTCY: Before, During, or After Divorce

The last time I checked, divorce was the number two reason people file for bankruptcy (medical bills is number one).  Bankruptcy and divorce go together because divorce causes financial strain, and sometimes bankruptcy is the only (or best) way to get through the ordeal.  So, what are the particular concerns and what can you do to prepare if you are contemplating bankruptcy in connection with a divorce?

I. Filing Jointly

It is cheaper and quicker to file a joint bankruptcy.  Obviously, if each spouse hires an attorney to file a separate bankruptcy, it will be twice the preparation and twice the cost.  Sometimes, that may be unavoidable.

Only married couples can file a joint bankruptcy petition.  So, if you are planning to divorce, and your relationship with the spouse is halfway cordial, it could be in both of your best interests to file the bankruptcy prior to issuance of the divorce decree.

Remember, the divorce is not legally effective until the final decree is entered by the court.  That means the fact you are in the process of divorce does not disqualify you from doing a joint bankruptcy.

By the same token, it is not necessary for both spouses to file for bankruptcy. Often, there are strategic reasons to file individually even if you are married.  [ video about separate filings ]

 More on Bankruptcy in Florida

II. When to File for Bankruptcy

You should understand the basic concept of a “fresh start.”  Your bankruptcy, assuming you qualified, will take care of all your debt up to the date of filing.

Under bankruptcy law, the key date is the filing of the petition. Everything that happens after that is considered your new life.

So, it probably does not make sense to file the bankruptcy until you get through all the major, foreseeable expenses related to your divorce (or whatever your situation is).  Just remember the cut off his the date of filing the petition for bankruptcy.  Whatever new debt you incur after you file for bankruptcy will not be discharged.  The new debt is part of your new life.  [video about discharge of debt ]

The bankruptcy process takes about four months on average, and sometimes much longer, depending upon which bankruptcy chapter you use, so you might have the feeling that everything that happens during that time is covered by the bankruptcy. It is not.

Also, be aware that at least eight years must pass before you will be eligible again to file for bankruptcy, so all new debt you incur after the date of filing your petition is here to stay.

So, give careful consideration to when you file for bankruptcy.

Chapter 7 Bankruptcy

III.  What about Domestic Obligations?

Whether you are the spouse obliged to pay or the spouse hoping to be paid, the issue of alimony and child support will be very relevant to you.

For better or worse, you should be aware that bankruptcy probably will not affect domestic obligations.

In other words, the bankruptcy code jealously protects debt related to domestic obligations. In fact, there are a few different classes of debt that cannot be discharged through bankruptcy, and payment of alimony and child support is one of them.

Obviously, each person’s case is somewhat different.  If you are dealing with divorce and considering bankruptcy, call today for a free consultation with a Florida bankruptcy lawyer.  This may not be a happy topic or a happy time in your life, but do try to keep in mind that bankruptcy protection exists for a reason and there can be many benefits if used correctly.

Jeff Harrington, Esq.