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Should I file for bankruptcy before divorce?

Tuesday, 03 June 2014

bankruptcy divorce 2First marriages usually start out before a couple has had a chance to accumulate debt, but that is not always the case. Some individuals look at marriage as a way to "solve" their debt issues because now they will have two incomes instead of one. If this sounds like you and you are getting married soon, it may be beneficial to delay the wedding until you have paid off all your debt. Marriage is challenging enough on its own without the added stress of entering it with mountains of debt.

Another group of people reading this article might include married couples who are barely making it financially and about to file for divorce. In these cases, men and women who are getting divorced won't just have to divide their property; they will need to decide how their debt is distributed. Remember, even if a debt was acquired by only one party of the marriage, the state of Colorado views it as "marital debt." Ultimately, when a household splits up, it is the party with the least income that is most affected financially. In fact, many of them leave divorce court only to find themselves in bankruptcy court just a few months later. Many people don't even wait for the divorce to become final; they are legally separated and already drowning in debt before the court can issue a decree.

How to prevent debt from letting your divorce get messy

Unfortunately, having a lot of debt will make any divorce pretty messy. Now, in addition to the expectation that each party will pay off their portion of the debt; they must worry about the other party defaulting.

One thing that most couples don't realize is that their creditors pay no attention to property settlements. If a credit card is issued in both of their names before divorce, the liability continues to belong to both of them unless an official change is made with the bank. This means if your ex-spouse doesn't pay a debt that was a "assigned" to him or her, your credit score will immediately suffer. This is because their contract with the credit card company still belongs to both parties.

Does it make sense to file for bankruptcy before a divorce?

If your divorce lawyer looks at your Sworn Financial Statement and immediately realizes you need to file for bankruptcy, you should seek counseling from a bankruptcy lawyer together. It makes a lot more sense to file for bankruptcy together as a married couple than to wait until the divorce goes through. This way, you will have little or no debt to worry about within the divorce. If, as a couple, you earn less than the median income level for Colorado, based on family size, you can file for a Chapter 7 or "total liquidation" bankruptcy.

What is a Chapter 7 bankruptcy?

In a Chapter 7 bankruptcy, the trustee cancels many, and possibly all, of your debts. In order to do this the trustee might also liquidate some of your property to pay off creditors. Also known as a "straight" bankruptcy, Chapter 7 is so named because the law is contained within "Chapter 7" of the Federal Bankruptcy Code. A Colorado Springs divorce attorney can direct you to another legal professional who can handle a Colorado bankruptcy.

The whole process of filing for Chapter 7 bankruptcy takes about four to six months and it costs about $300 in administrative/filing fees. In most cases it will require only one trip to court, but you must also complete credit counseling with an approved agency with your state. Keep in mind, however, that Chapter 7 will not be an option if you have already received a bankruptcy discharge within the past six to eight years, or if your income, expenses and debt burden are such that you could feasibly file for Chapter 13 and repay your debts.

Filing for bankruptcy together before filing for divorce will make the post-divorce financial burden much more bearable for both parties. It may not give you the credit score you have always dreamed about, but it will be much less complicated. Also, if together the family income is below the median level in Colorado, a couple may meet the criteria for certain standard exemptions, thereby allowing them to maintain a normal standard of living after divorce. Essentially, filing for bankruptcy will make a divorce far less messy and it will allow a debt-burdened couple to get a fresh start financially.

If you're going through a divorce and think you might need a bankruptcy, make sure to talk to your family law attorney about it. It might be the easiest way to start a new life after divorce.

Photo Courtesy of MrPuen / FreeDigitalPhotos.net

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MPatMarrisonFor over a quarter century, we have helped people during what is often the darkest time in their lives. Divorce is not easy even under the best of circumstances. For most people, family is central. Having something go wrong in the family can have a ripple effect that extends beyond the home and into other areas.

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