Divorce is a Common Reason for Bankruptcy
Many people are scared of the word “bankruptcy” but it can actually be something that can change your entire life for the better. There are many different reasons that people choose to file for bankruptcy and it is not something to be ashamed of. However, a very common factor when it comes to bankruptcy is divorce. Divorces are expensive and can often times leave one or both people involved with no choice but to file bankruptcy.
Why do divorces and bankruptcies often times go hand-in-hand?
A divorce settlement agreement will ultimately end up dividing the assets as well as the debts of the parties. The wife may have to pay one credit card and the husband another credit card along with certain other debts. As long as each side holds up its end of the bargain and continues to take care of the debts, this will work fine.
However, the divorce settlement is an agreement between the parties, and does not bind the creditors. So, for example, if the husband defaults on his payments for his credit card, or gets a discharge of that debt in bankruptcy, his ex-wife may find herself footing the bill. It will be a small consolation to her that she can go back to divorce court and fight, at her cost, against her ex-husband’s breach of the agreement.
The parties might want to consider filing for bankruptcy jointly before their divorce. The advantage to this is that they can jointly discharge marital debt, and reduce for each the chance that the other will drop the responsibility back into his or her lap after the divorce. However, each case is different and the specifics of each family should be weighed with care.
What about domestic obligations?
A divorcing couple should be aware that domestic obligations like child support and alimony are not dischargeable in bankruptcy, and should make their divorce and bankruptcy decisions with this fact in mind.
If you’re going through a divorce and have questions about looming debt, contact our office today for a free, no-obligation consultation. We will review your situation and come up with the best option for you.