Bankruptcy & Divorce
Unfortunately, some of life's most stressful events are often intertwined. Financial stress is one of the leading factors in divorce, and divorce can create a financial crisis for one or both parties. Once upon a time, an unscrupulous party to a divorce could wait until the case was decided and the debts and assets divided and then file for bankruptcy protection, leaving the other spouse stuck with all of the debt. However, those debts are in most cases no longer dischargeable in bankruptcy.
Even so, divorce can create financial hardships that push one or both parties into bankruptcy. Sometimes the simple fact that the same amount of money must now support two households creates a financial crisis in itself. At other times, poor management of debts during the divorce process has damaged both parties' credit ratings and resulted in the accumulation of fees and interest that make debt unmanageable.
Finally, although a spouse is legally liable for the debts allocated to him or her in the divorce decree, that allocation does not relieve the other spouse of obligation to the original creditor. This is one of the most difficult aspects of divorce for many people to understand, but the divorce court does not have the power to change your obligations to outsiders who are not a part of your divorce case. If you entered into an agreement with a credit card company or mortgage lender, that agreement is binding upon you no matter what the divorce court says-the only difference is that you can take your spouse back to court to force him or her to pay.
Which Should Come First, Bankruptcy or Divorce?
Married couples can file bankruptcy jointly and divorced couples cannot, so couples who are considering bankruptcy often find it financially advantageous to file for bankruptcy protection before divorcing. However, changes to the bankruptcy laws in 2005 made it more difficult for people above a certain income level to file for Chapter 7 bankruptcy. That means that some couples might find themselves unable to file for Chapter 7 bankruptcy, whereas one spouse alone might be able to do so after the divorce.
If you are considering bankruptcy and divorce, or are planning to divorce and you and your spouse face significant financial difficulties, consult with a divorce lawyer and a bankruptcy attorney before making any decisions or taking any action.
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