When two people exchange vows, they plan to remain together for a lifetime or as long as their love shall last. When things don’t quite go as planned and divorce becomes a real possibility, things can only become more complicated if one partner is going through financial turmoil. It is not uncommon for divorcing couples to face severe financial distress as they transition back to a single way of life. Anyone who is struggling to make ends meet while divorcing from their spouse, may consider filing for bankruptcy as a way to get back onto their feet.
Reasons to File for Bankruptcy
There are a variety of reasons that someone may choose to file for bankruptcy after divorce. In most circumstances, the reason behind filing for bankruptcy is due to going from a dual income home to a single household. For example, if you and your spouse used to split mortgage on your house and they are moving out, that means you may have to absorb that cost entirely by yourself. This can make it challenging to keep up with other bills that you have. These abrupt changes can dramatically alter a person’s disposable income.
What Happens After You File
With help from your attorney, you can file for bankruptcy and begin the process of repaying or eradicating your debts, depending on which chapter you apply for. Once your paperwork for bankruptcy has been received, all of your assets and debt will be protected under the automatic stay. With an automatic stay, creditors and other agencies in which you owe debts to are no longer able to contact you for payments. Essentially, your assets and debts are “frozen” until your financial situation has been assessed.
Usually, divorcing spouses will either apply for Chapter 7 or Chapter 13 bankruptcy, which are explained in further detail below:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy” because it entails liquidating and selling off assets to pay off outstanding debts. In exchange for selling certain property, unsecured debts such as credit cards and medical bills are eradicated. However, not every person qualifies for Chapter 7. It’s best to consult with a bankruptcy lawyer.
Chapter 13 Bankruptcy
Chapter 13 may be called “reorganization bankruptcy” in which the debtor must establish a repayment plan over a 3-5 year span in monthly payments. Once the term is complete, the remaining debt balance is usually discharged.
Impacts for Your Ex-Spouse
If you are the only spouse filing for bankruptcy, whether your status will impact your ex-spouse depends on the structure of your assets. By filing for bankruptcy, your credit score may take a hit and the bankruptcy status will remain on your credit report for up to ten years. Your spouse’s credit report won’t be affected. However, your spouse may not be freed from paying for certain debts, particularly ones where you accumulated debts in a joint account.