Divorce and Bankruptcy: How It Works

Bankruptcy and divorce: two areas of law most people hope to avoid in their lifetime

As a lawyer who has practiced in both areas of law, I want to unpack the stigma and help people who find themselves in the situation of dealing with bankruptcy and divorce at the same time.

Divorce and bankruptcy can come up at the same time for many reasons. Financial hardship is one of the leading contributors to divorce. Conversely, many times a divorce can lead someone to file bankruptcy.

How Do Bankruptcy and Divorce Intersect?

To fully understand how bankruptcy and divorce intersect, you must first understand both. Most people understand the concept of divorce. When a couple wants to end their marriage, they seek a divorce.

Financial Issues and Divorce

But many financial issues come up when a couple ends a marriage. Not only are there spousal maintenance and child support issues, but a couple must also divide their marital assets and debts. Larger items, such as real estate, can be difficult to divide. If neither party can afford to buy the other out, then the couple may be forced to sell the home, sometimes quickly.
Aside from losing half your partner’s income and half of your assets, you are also paying court fees and attorneys, mediators and sometimes appraisers, or experts to finalize your divorce. If you are already in financial trouble, going through divorce may push you over the edge.

Bankruptcy for Individuals

While most people are familiar with divorce and the issues involved, most people are not familiar with bankruptcy and even are scared to discuss it. There are many different types of bankruptcy; however, most individuals file either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy .

  • A Chapter 13 is a “reorganization” of an individual’s debts and financial obligations with repayment of the debts over a 3 to 5 year period. There are debt limitation requirements in a Chapter 13 and repayment of debts are made to creditors under a repayment plan approved by a federal court.

Dealing with the Hardship of Bankruptcy and Divorce

Bankruptcy and divorce can intersect in several ways. Two common scenarios are:

  1. You and/or your spouse filed a bankruptcy and are still in the bankruptcy when you want to file for divorce.

Divorce When Your Spouse is in Bankruptcy

The second scenario is more difficult. Starting with the question of “can you file a divorce while your spouse is in bankruptcy?” If your spouse is going through the bankruptcy process it may be worth it to wait until the bankruptcy is finalized before you file a divorce. This is because the bankruptcy takes precedence over the divorce. When a bankruptcy is filed, an “automatic stay” is entered meaning that no lower court proceedings can continue until the bankruptcy is finished or they get relief from the bankruptcy court. This is especially true if the divorce will include division of marital assets. It is likely that you would not be able to obtain a divorce judgment until the bankruptcy is over.

  • If the debts are mainly the property of one spouse, you want to discuss whether it would be more beneficial to you to wait until your spouse’s bankruptcy is complete or go ahead and file for divorce now. If you are the spouse with a lot of debt, it makes sense to discharge the debt sooner rather than wait until the divorce is over.

Experienced Divorce Attorneys That Know Bankruptcy Make all the Difference

If you should find yourself in this situation, you should consult an attorney who is knowledgeable in both of these areas. Each case is different and there are many personal factors to consider. Divorce and bankruptcy are two of the most stressful things a person can go through; however, having a knowledgeable and experienced attorney can make all the difference.

We invite you to contact Anderson & Boback to schedule a consultation to discuss your family law or divorce matter including any questions you may have about dealing with divorce and bankruptcy at the same time.

THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/divorce-litigation/expert-witness-testify-family-law-case/

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