Bankruptcy and divorce often go hand-in-hand, and in most cases, it is advisable to file for bankruptcy first. This ensures that all the assets and debts are taken care of first, before any division of debts or property starts to become an issue. Additionally, while a bankruptcy case can be taken care of somewhat quickly when everyone is prepared, a divorce can take months or even years to complete – and those are months or years in which you’ll still be paying on those debts.
However, a quick bankruptcy case with simple settling of debts and assets describes a situation in which the upcoming divorce will be civil, if not amicable. What if you have already begun the divorce process, and things are growing hostile? Or maybe you are considering which to file, and you know your divorce won’t be smooth sailing. Here’s what you need to know regarding less-than-amicable divorce and bankruptcy in NYC.
Chapter 7 vs. Chapter 13
If you think you can rush the bankruptcy process before things get out of hand, it’s best to file a Chapter 7. This is a total liquidation process that is meant to get rid of bills entirely, and create a clean slate. This is great for couples who are going to end up fighting over who pays which debts during the divorce.
A Chapter 13, on the other hand, requires three to five years of payments – and if one spouse doesn’t pay their end, even after the divorce, the other could be on the hook for paying it. So if you only qualify for a Chapter 13, it may be better to wait and file after your divorce.
Income and Property Owning Impacts the Timing
If you own property together, and do not expect a hassle in dividing it evenly, then filing jointly in a bankruptcy can help you protect more of the property from creditors. However, doing this puts that automatic stay on the property, which makes it harder to divide during a divorce proceeding.
If you expect to fight about dividing property after some of it may have to be given up as part of the bankruptcy, then it may be better to divide it in a divorce hearing, and file bankruptcy separately later.
Your income also impacts what kind of bankruptcy you can file. If you are filing jointly, you may not be eligible for bankruptcy. Waiting till after the divorce may make it easier to file.
Understanding Debt Obligations
When you file for a divorce, the courts may order your ex-spouse to pay a certain credit card debt as part of the divorce. Now, let’s say that your ex-spouse filed for bankruptcy soon after. It is important to realize that the credit card company can then turn around and come after you for the balance of the debt – your ex-spouse was relieved from the debt, but it didn’t just disappear.
Now, you are obligated to seek reimbursement from your ex-spouse. No bankruptcy case can excuse a person from paying something that was ordered in a divorce case. This is important to know if you are on the other side as well; if you file for bankruptcy after divorce, and your ex-spouse does not, they may end up paying your debts, and coming after you for reimbursement.
There are many intricacies involved in a bankruptcy and divorce, and you also need to realize that you’ll need separate lawyers for both if your bankruptcy lawyer is representing you as a couple. To find out more, call my office at 212-244-2882.