Can Bankruptcy Help Get Rid of Joint Debts in a Divorce?
It depends on the bankruptcy and the divorce as to how it will help get rid of joint debts. If you file for bankruptcy first, you and your spouse will only have to pay one filing fee and can share the legal fees of your bankruptcy attorney. Filing for bankruptcy first can also make the property division portion of your divorce case simpler. Typically in a divorce, the court will divide both the assets and the debts. However if you and your spouse secure a discharge of your unsecured debts through bankruptcy, neither one of you will have to pay them after you receive the discharge. Therefore the court will not need to divide them.
It is also important to note that if a judge orders your spouse to pay a debt that you share, the court’s order will not impact the creditor. Since the creditor is not a party to your divorce, it can go after either you or your spouse to collect payment. If you do not obtain a discharge of a debt through bankruptcy, the creditor can seek to collect what is owed regardless of the family court’s orders. If it is discharged in a bankruptcy that you and your spouse file before you file for divorce, the creditor may not engage in any further collection activities for that debt against either you or your spouse. If it is discharged in a bankruptcy and only one of you filed before you file for divorce, the creditor can seek further collection activities against only the spouse who did not file bankruptcy.
Filing for bankruptcy before your divorce also has a few disadvantages. If you plan to file for Chapter 13 bankruptcy instead of for Chapter 7 bankruptcy, it may be a better idea for you to wait to file your bankruptcy case until after your divorce is finalized. This is because of the differences between these two types of bankruptcy. By contrast, a Chapter 13 bankruptcy is a type of bankruptcy that involves you entering into a repayment agreement that will last between three and five years. If you and your spouse file for Chapter 13 bankruptcy before your divorce, it will be a long time before your shared repayment plan is completed. Unless you and your spouse are very amicable, it might not be a good idea for you to file this type of bankruptcy before you divorce.
It is generally never a good idea to file for bankruptcy during a divorce for multiple reasons. This is because both your divorce and bankruptcy cases will impact each other, causing the cases to be delayed. When you file for bankruptcy, your non-exempt assets will become a part of your bankruptcy estate. This means that the judge in your divorce case will not be able to divide your assets until your bankruptcy case is concluded. It is best to file either bankruptcy or divorce first instead of filing them at the same time. It is always suggested to talk to your divorce lawyer in Montgomery or wherever you live about when to file each case.
Some people choose to file for divorce first and then to file for bankruptcy after their divorces have been finalized. This might be advantageous if you either plan to file for Chapter 13 so that you can retain more of your property or if you don’t qualify to file for Chapter 7 bankruptcy because your income is too high. However, if you and your spouse both need to file for bankruptcy, waiting until after your divorce is final means that you will each have to pay your own filing fee for your bankruptcy petitions, which means that you will ultimately pay more in legal fees. Waiting until after your divorce to file for bankruptcy protection may also be beneficial if you and your spouse cannot get along. This can allow you to seek a discharge of your debts without having to depend on your spouse working together with you in your bankruptcy case. One issue that can arise when an ex-spouse files for bankruptcy after a divorce is the division of debts that was previously ordered by the family court in the dissolution case.
If the bankrupt spouse was ordered to pay a joint debt in the divorce case and subsequently obtains a discharge of that debt, the debt does not simply disappear. If your ex-spouse was ordered to pay an unsecured debt such as a credit card or medical bill that is in both of your names and subsequently has it discharged in bankruptcy, the creditor will not be allowed to try to collect on the debt from your ex-spouse. However, the discharge that your spouse obtained will have no impact on the ability of the creditor to come after you to collect on the debt. You also will not be able to enforce the family court’s order to your ex-spouse to repay that debt because the bankruptcy court’s order for the discharge supersedes the family court’s order.