One or both of the people getting a divorce can end up going bankrupt. Usually, a couple can work together to pay off their debts. But the sudden change to a one-income household can be too much for a person’s finances.
Also, the process of getting a divorce could have made a person more in debt. A financial crisis can get worse if you have to hire lawyers, pay court costs, and miss work. Because of this, a lot of people think about filing for bankruptcy after a divorce.
Filing Bankruptcy to Get Rid of Debts
When you file for bankruptcy relief, you don’t have to have an attorney, but it’s a good idea. Complex laws govern bankruptcy. If you make mistakes, you could lose property or come out of bankruptcy still owing money to your creditors.
Your situation is looked at by a bankruptcy lawyer. Then, if you need to file for bankruptcy, the lawyer will talk to you about whether you should file under Chapter 7 or Chapter 13.
Chapter 7 bankruptcy, which is also called “liquidation” bankruptcy, is for people who don’t make enough money to cover their living costs and debts. To get a Chapter 7 discharge, you must pass a test about how much money you make. A Chapter 7 case with no assets could be over in four to six months after the bankruptcy petition is filed.
When you file for Chapter 13 bankruptcy, you come up with a plan to pay back your debts over three to five years. Then, based on your confirmed plan, you make payments to a Chapter 13 trustee every month. Your Chapter 13 payment depends on your income, expenses, assets, and debts, among other things.
Does Filing for Bankruptcy Remove Alimony or Child Support?
Most types of unsecured debts are wiped out by a bankruptcy discharge. A person with debts can get rid of them by:
- Charge cards
- Medical bills
- Personal loans
- Judgments
- Old payments for rent or lease
- Some old back taxes on income
But if you file for bankruptcy after a divorce, your support payments won’t go down or stop. According to the final divorce decree, you must continue to pay child support and/or spousal support.
Filing for Chapter 13 could help if you are behind on child support payments. You can add payments for child support and spousal support that you owe but haven’t made yet to your Chapter 13 plan.
You must pay your regular child support payments outside of your Chapter 13 plan right away. But as long as you pay your child support and alimony on time in the future, you should be able to avoid contempt proceedings for the past-due support that is part of your Chapter 13 plan.
What Happens to Debts that Me & My Ex Signed?
Your ex-spouse will know that you filed for bankruptcy if:
- You must pay alimony or child support.
- You owe your ex-spouse a debt
- Your ex-spouse is a co-debtor or guarantor on all of your debts.
There are other ways that your ex-spouse might find out that you filed for bankruptcy.
If you file for bankruptcy, you no longer have to pay a debt you and your ex-spouse owe. Because of the automatic stay, the creditor can’t do anything to try to get the money back while the bankruptcy is going on. After the debt is discharged, the law says that creditors can’t do anything to get the money back.
So, the creditor may file a lawsuit against your ex-spouse to get the full amount of the debt. When you file for bankruptcy, your spouse’s debt does not go away. If your ex-spouse co-signed the debt, they are responsible for it if you don’t pay or if you file for bankruptcy and get rid of the debt.
But filing for bankruptcy won’t get you out of a court order from a family court that says you have to pay a debt. Your ex-spouse could take you back to family court if you don’t pay a debt you were told to pay as part of the divorce.
For example, in Chapter 7, you could give up the home you shared with your spouse to get out of having to pay the mortgage. Then, when your Chapter 7 case is over, you no longer have to pay that debt. But if the court told you to pay your spouse’s mortgage, and you didn’t, you could get in trouble.
How Does Filing Bankruptcy After Divorce Impact My Credit Score?
When most people file for bankruptcy, their credit score has already been hurt by late payments and missed payments. When you file for bankruptcy, your credit score drops for a short time. The amount you can save depends on your credit score before you filed for bankruptcy and other things.
But after filing for bankruptcy, many people see their credit score go up in a year or two. Your credit score will go up if you use your credit wisely and make all future payments on time.
If you’re thinking about filing for bankruptcy, talk to your divorce lawyer right away. If you file for bankruptcy, it could affect your divorce. Your lawyer can help you get a consultation with a bankruptcy lawyer. Your lawyers can help you figure out how to handle your divorce and bankruptcy in the best way.
Contact Paducah Divorce Lawyers, A McCracken County Family And Divorce Law Firm, For More Help.
Contact the family lawyers at Paducah Divorce Lawyers today if you need legal help. Visit our law office in McCracken County or give us a call at (270) 201-7776 to set up a free consultation with our team.