Financial stress is one of the leading causes of divorce, and divorce increases financial strain by splitting income and assets into two separate households. So, it’s no surprise that divorce often follows bankruptcy or vice versa. Unfortunately, when marital stress is coupled with financial stress,decisions about how best to address the more practical issues are often influenced by emotion.Too often,that leads to faulty decision-making that comes back to haunt one or both partners.
If you’re considering both divorce and bankruptcy or have filed for divorce and are considering bankruptcy, it’s important to fully educate yourself as quickly as possible to avoid unpleasant surprises. A free consultation with our office to speak with one our bankruptcy attorneys can be the best starting point. Having a clear plan and understanding of your bankruptcy options will help you make educated decisions as you negotiate other aspects of your divorce case, such as spousal maintenance and division of debts and assets. Having worked through the financial issues will help inform your plans for the future, since you will have a better idea of your future financial obligations.Below are the top four (4)bankruptcy and divorce mistakes.
1) Filing for Bankruptcy at the Wrong Time
The more common mistake with regard to timing occurs when one party wants to file bankruptcy, but decides to postpone until after the divorce is final. While filing pre-divorce isn’t the right move for everyone, it can often save both time and money, particularly when the parties have significant joint, unsecured debt and are eligible for Chapter 7. A married couple may also be able to protect more property through bankruptcy exemptions than one or the other filing separately could. In other situations, holding off may make sense. For example, a Chapter 13 case involves payments spanning three to five years, so commencing a case with divorce on the horizon might not be the right move especially without strategy. The best approach to bankruptcy when divorce is in the mix depends on a wide range of factors, and should be discussed with both your divorce attorney and your bankruptcy attorney before you make any decisions.
2)Letting Emotion Dictate Your Decisions
The period leading up to and during divorce can be emotional, contentious, and confusing.Too often, a divorce case ends up costing both spouses more than is necessary, both economically and in emotional energy. With bankruptcy in the mix, the opportunities for anger-driven financial mistakes are magnified. Remember that while your marriage will soon be over, the financial impact of the decisions you make now could affect your lives and your children’s lives for years to come. Though it isn’t always possible, working together with your spouse to resolve outstanding debt problems through a solution such as a joint Chapter 7 bankruptcy case is often the best answer from a practical, economic standpoint.
Before you decide you “just want to get it over with” or make financial decisions designed to hurt your spouse, make sure you have a thorough understanding of the short and long term effects your decisions will have on you and the rest of your family.
3) Assuming that One Party Filing Bankruptcy Wipes Out Debt
Many people misunderstand the impact of a divorce decree on financial obligations. In short, although the divorce court enters orders requiring that the husband be responsible for the outstanding balance on the Visa card and the wife the balance on a personal loan, those orders don’t affect the original creditor’s rights. The credit card company isn’t a party in your divorce case, and the divorce court has no authority to undo your contract with the creditor. So, even though the divorce court order says “husband pays the Visa bill,”the credit card company can still pursue payment from the wife, even file a lawsuit against her if the husband fails to pay.
Bankruptcy of one party doesn’t change that, if both spouses were obligated on the debt. So, if the husband files bankruptcy alone, before or after the divorce, the credit card company won’t be able to pursue him directly to collect that unpaid credit card balance. But, they will likely still be able to pursue payment from the wife. And, depending on the terms of the divorce decree, she may in turn be able to pursue reimbursement and other costs from the husband.
4) Misunderstanding the Impact of Bankruptcy on Domestic Obligations
Due in part to the emotional element discussed above, some people preparing for divorce are inclined to schedule a bankruptcy filing at the time it will most hurt the other spouse. For example, it is all too common for one spouse in a contentious divorce case to secretly plan to file for bankruptcy, aiming to leave the other spouse holding the bag on joint debt or to avoid payment of support obligations to the other spouse. But, some divorce related obligations are non-dischargeable in bankruptcy.
Unfortunately, Alabama is among the nation’s highest divorce rates, but this doesn’t have to be the case. At Bond & Botes we believe we have saved many marriages as practicing bankruptcy attorneys. We have received many referrals from pastors to help with marital problems, where the crux of the problem were financial in nature. Our clients come into our office with their marriages on the rocks. Their wages are sometimes being garnished. Perhaps they face an imminent foreclosure or repossession. The bankruptcy laws allow us to stop all of these things almost instantly. Once the bankruptcy is filed, a tremendous burden is taken away from our clients. They no longer have the weight of the world on their shoulders. The bankruptcy may give them a chance to save their home, car and most importantly – their marriage.” So once all the financial problems are solved the couple,to use a story book line, could “Live Happily Ever After”.
Do you have questions on bankruptcy or divorce?
If you’re in the process of divorce or considering divorce and have serious debt problems, it is in your best interest to talk to us before making any decisions about how best to proceed. So contact us today to schedule a free consultation because we want your financial problems to be solved and your marriage to be saved. We want you to“ Live Happily Ever After”.
Alabama State Bar requires the following: “No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.”
Bond, Botes, Sykstus, Tanner & McNutt, P.C.
102 South Court St, Suite 314, Florence, AL 35630
Phone: 256-760-1010 • Fax: 256-760-1023
Office Hours: Monday – Friday • 8am to 5pm
No representation is made that the quality of legal services to be performed is greater than the quality of legal services to be performed by other lawyers.