Bankruptcy After Divorce

Divorce is one of the leading causes of bankruptcy.  The question is always whether it is better to file bankruptcy before a divorce or after a divorce.  There is no right answer, because it depends on your individual situation.  I have previously written about the benefits of bankruptcy before divorce.  However it might not be possible for you to file bankruptcy before your divorce or you might not need bankruptcy until after your divorce.  Additionally, there may be issues of legal strategy where it makes more sense for you to wait until the divorce is complete to file bankruptcy.

A few reasons to wait to file bankruptcy until after the divorce is if you have an ex-spouse who will not cooperate with you, if the divorce is contentious, or if you need the divorce to be completed quickly.  Bankruptcy before divorce usually works best during an amicable or agreed divorce process where you still have enough of a relationship to work with your spouse.

The biggest reason to wait until after a divorce is complete to file bankruptcy is when you do not know how much the divorce will cost.  During a contentious divorce, you may have large legal expenses that are difficult to predict with any certainty.  This means that while you are paying your legal fees, you are getting behind on other bills.  There are limits to the number of times that you can file a bankruptcy, so filing bankruptcy too early can really hurt you.

If you file bankruptcy after your divorce, you need to make sure that you understand a few key concepts and that you make sure your divorce is properly structured:

  • Certain Debts Cannot Be Discharged:  A domestic support obligation such as alimony, maintenance, or child support cannot be discharged in bankruptcy.  You cannot avoid child support, because it is awarded based on a statutory formula and the best interests of the child standard.  However, you can control the amount of alimony and maintenance that you pay.  In particular, watch out for the other side’s attorneys’ fees.  If you have to pay the other sides’ attorneys’ fees try to avoid having those attorneys’ fees classified as alimony or maintenance obligations.
  • Certain Debts Can Only Be Discharged In Chapter 13:  A non-support obligation that arises out of a divorce decree can only be discharged in a chapter 13.  Examples of non-support obligations are an agreement to pay certain debts and attorneys’ fees that are not classified as alimony or maintenance obligations.  If you have to agree to make payments to your ex-spouse, you want them to be classified as non-support obligations.  Even though a chapter 13 costs more than a chapter 7, it is still preferable to spending the next several years paying off debts from your divorce.
  • Don’t Plan On Discharging Your Own Family Law Attorney:  It is a very bad idea to go into a divorce with the plan that you will run up a large bill with your own attorney and then put them into bankruptcy.  You should be honest with your family law attorney about what you can afford.  It is important to create a solid groundwork for your relationship with your family law attorney.  It is also important that you maintain that relationship so that I can work with them during the bankruptcy process.
  • Be Careful With Credit Cards:  It is fine to use credit cards to pay your family law attorney; however, you must make a good faith effort to repay those credit cards before you try to file bankruptcy.  Credit card companies track usage patterns before bankruptcy filings.  If they see you put a huge legal bill on the credit card and then file bankruptcy a month later, that credit card company will cause problems for you.  If you have used credit cards to pay your attorneys’ fees or to cover living expenses, then we can work on strategies for timing your bankruptcy to avoid problems with the credit card companies.
  • Be Aware Of Your Ex-Spouse – It is always vital that you are completely honest on your bankruptcy petition; but this is twice as true if you file bankruptcy after a divorce.  Angry ex-spouses are known for contacting bankruptcy trustees and trying to cause trouble.  Fortunately, I have a very solid petition preparation process; and, I know how to deal with angry ex-spouses who are trying to cause trouble for a client.

If you have recently gone through a divorce, bankruptcy may be an important part of your road to financial recovery and getting rid of the baggage from divorce.

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  1. Pingback: Bankruptcy After Divorce | Bankruptcy Attorney Seattle and Kent – Filing For Bankruptcy Questions

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