Divorce has a reputation for causing major financial setbacks. People have to pay to divorce, which can cost tens of thousands of dollars in high-conflict cases. They also usually have to divide their property, which can diminish their personal wealth.
Particularly in cases where one spouse has to pay financial support due to a court order, divorce can have major implications for their financial stability. Some people end up considering bankruptcy after a divorce. People contemplating personal bankruptcy – and who are also newly divorced – need to be aware of the three important considerations below.
Bankruptcy could violate family court orders
One of the reasons people may file for bankruptcy after a divorce is that they may have personal responsibility for numerous debts. They may think that discharging those debts allows them a clean slate. However, it can be more complicated than that when the debt is a marital debt subject to a family court order. The decision to discharge the debt might lead to the other spouse facing responsibility for those debts. They may be subject to collection activity or lawsuits brought by creditors. In such cases, people may end up back in family court facing allegations of violating the property division decree.
Bankruptcy doesn’t eliminate support debts
Frequently, the requirement to pay child support or spousal support can push people to the financial brink when combined with the retention of major marital debts. Especially in cases where people have a large past-due balance on their support obligations, they may hope that bankruptcy helps resolve their financial hardship. Unfortunately for those individuals, court-ordered support is typically ineligible for discharge in a bankruptcy case. Although they can eliminate other financial obligations to help them catch up on their past-due support, the balances owed due to family court decrees are often not eligible for discharge. The same is often true of outstanding court costs.
Bankruptcy can help balance a budget
Some people considering bankruptcy after divorce opt for Chapter 13 proceedings. They can negotiate a repayment plan that may help them catch up on what they owe and integrate new obligations into their household budget without risking lawsuits and other aggressive collection activity. Others qualify for Chapter 7 bankruptcy and can quickly eliminate certain unsecured debts. Although bankruptcy does mean limiting credit opportunities in the short-term future, it can be beneficial to have a fresh start financially when rebuilding after the end of a marriage. There are benefits and drawbacks to bankruptcy filed after or during divorce.
Reviewing financial obligations with a skilled legal team can help people determine if a personal bankruptcy filing is right for them and what type of bankruptcy could prove the most beneficial. Bankruptcy can help prevent aggressive collection efforts and a more sustainable budget for those adjusting to life after divorce.