• 08
  • November
    2011

Money troubles have always been one of the most common reasons couples divorce. This is even truer now that so many families have been devastated by the recent financial crisis.

An increasing number of Americans are finding themselves facing two major life changes in the fallout from the Great Recession - divorce and bankruptcy. Even if a couple was not considering bankruptcy before the divorce, the costs of maintaining two separate households may be enough to drive the separated spouses into dire financial straits.

If you or your ex is considering filing for bankruptcy after a divorce, there are some basic principles you need to consider.

Should We File Separately or Together?

Divorcing couples need to decide whether to file for bankruptcy separately or as a couple. If most of the debts are community property debt or are otherwise jointly held, a joint filing may make sense. However, since only married couples can file for joint bankruptcy, the bankruptcy needs to be dealt with before the divorce is finalized.

In other cases, it may make sense for only one partner to file for bankruptcy. However, if your ex files for bankruptcy, you need to understand that you could still be on the hook for his or her debts. If the debt was held jointly, you may still be required to pay it, even if it was assigned to your ex in the divorce settlement and discharged in his or her bankruptcy. This is because agreements in a divorce settlement typically cannot extend to third parties outside the marriage.

What Can I Discharge In Divorce?

Generally, filers can seek relief from most personal debts-such as credit cards and medical bills - in both Chapter 7 and Chapter 13 Bankruptcy. However, many divorce-related debts are not.

Alimony, child support and other support-related financial obligations are not dischargeable in bankruptcy. Further, 2005 reforms to U.S. bankruptcy law also made non-support divorce awards non-dischargeable if the discharge would hurt the award recipient more than it would help the person who is supposed to pay.

Bankruptcy is always a complicated procedure, and it is even more difficult when done in tandem with a divorce. If you are considering seeking relief from your debts, contact an experienced bankruptcy attorney in your area.

Divorcing couples thinking about bankruptcy in Arizona are encouraged to contact a knowledgeable Phoenix bankruptcy attorney.

Source: Divorce.com, "Should You File for Bankruptcy During Divorce?"