Bankruptcy and Divorce – How Do They Affect Each Other?
Bankruptcy and divorce are both difficult decisions to consider, and considering them at the same time raises some concerns and questions. Financial concerns are often the focal point of divorce. Research has shown that how to divide marital property, both personal and real estate, has caused more stress and frayed nerves than other aspects of a divorce, with the exception of the ongoing care and nurturing of minor children. As many states, including Florida, use equitable distribution rather than equal distribution, the job of determining what is non-marital and what is marital becomes vital to the process of division of assets and liabilities (debts). Equally as vital in determining equitable distribution is attaching proof to each item as to its value. Attaching value allows the couple at mediation or a judge in the courtroom to try to make marital property division as fair as possible. In other words, one party may receive high-end electronics and the other party appliances of like value. When it comes to equitably dividing debt, each party will have its share of, for example, credit card debt.
So, what does bankruptcy have to do with a divorce and the division of marital property and debt? In most instances, if a couple is no longer able to pay their bills and has looked into filing bankruptcy as a form of relief and can qualify through a means test, it can actually help the divorce as most debt and assets, both marital and non-marital, will be discharged in a Chapter 7. Therefore, if the bankruptcy is filed before or during the divorce, there will be few assets and debts to try to divide. If a Chapter 13 is filed, this type of bankruptcy involves entering into a repayment agreement with lower payments lasting from three to five years. However, the assets will be kept, and as long as monthly payments are made on time, the debt will be paid down. If, however, payments are not made on time the, Chapter 13 will revert to a Chapter 7, and nonexempt assets will be sold to help resolve the owed debt.
The big question for a couple qualifying and needing to file bankruptcy is whether to file before, during, or after the divorce. Timing of the bankruptcy is important, and seeking legal advice regarding divorce and bankruptcy should be done before making a final decision. Here are some considerations:
Before:
- Filing can be done jointly so that the cost can be divided.
- Helps you know up-front what is left in exempt (that is, assets the bankruptcy law does not require you to sell to help pay the debt in Chapter 7, such as a vehicle worth less than $1,000 and personal property up to $1,000 )not attached to the bankruptcy and will be part of the division of marital assets.
- All in all, the division of marital assets and liabilities will be much easier and take less time.
During the divorce:
- Bankruptcy can be filed during the divorce proceedings, but doing so will slow down the divorce process as until the bankruptcy findings are final, neither you nor the judge will know what assets and liabilities remain to be divided.
- If you have alimony or child support issues, this will slow down the bankruptcy case, which then, in turn, further slows down the divorce.
- You can file jointly
After the divorce:
- Each party will have to pay their own filing fee
- You will be able to keep the assets awarded to you if you are filing a Chapter l3.
- Unsecured debts that are discharged during a Chapter 7 bankruptcy by one party, if both party’s names were on the debt, the forgiveness of the party filing the Chapter 7 will make them no longer responsible for the debt, but the other party whose name is on the debt will still be responsible. Bankruptcy court orders supersede family court orders, so unless you file bankruptcy as well, you will still be responsible for the debt even though the other party is no longer responsible.
- If you did not qualify to file bankruptcy when married due to high joint income, you might be eligible after the divorce with your reduced income.
You can easily see that bankruptcy and divorce can affect each other and should be carefully considered both in the timing and the Chapter, either 7 or l3 to file. Speak with your attorney regarding the important decision of whether to file bankruptcy before, during, or after. Attorney Grant Gisondo, who practices in Palm Beach, Martin, St. Lucie, Miami-Dade, Broward, Orange, and Hillsborough Counties in Florida and New York, and Washington DC, is well versed in helping clients make the kind of decisions written about here. He has been successfully representing clients for over a decade and is now Board-Certified in Florida Marital and Family Law. You can ask questions regarding divorce and bankruptcy during the free, initial, in-office consultation Attorney Gisondo offers to new clients. To make an appointment, please call his office at (361) 530-4568. His office hours are Monday through Friday from 9:00 AM to 5:00 PM and for new clients on Saturday from 8:30 AM to 1:00 PM. To learn more about Attorney Gisondo and his Family Law Practice, you can visit his website https://gisondolaw.com.