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Both divorce and bankruptcy bring forth intense emotion for most people. It is easy to let these legal actions create a sense of embarrassment or even shame in us. When both have to be contemplated at the same time, or as part of a larger legal strategy, it is easy to be overwhelmed. There are ways, though, to keep both actions heading in the right direction and to bring them to successful conclusions.
The first thing to remember about both divorce and bankruptcy is that they share a purpose. Both types of legal actions involve the redistribution of property, including money. They may touch on other aspects of life, but this common purpose requires careful planning to ensure that both actions go smoothly. Below are a few tips for keeping everything on track.
1. Hire competent, experienced attorneys You may be luck enough to find one attorney who is experienced in both divorce and bankruptcy law, but do not plan on it. Each action is very specialized,and requires a specific knowledge base that not all attorneys, not even all good attorneys, have. It may seem like an unnecessary expenses, but seriously think about hiring separate counsel for your divorce and bankruptcy. It will be vital that they communicate with one another, but this is one of those cases in which two heads are better than one. What the one attorney may not realize about the ramifications of an action, the other one probably will.
2. Get the timing right Which action comes first - divorce or bankruptcy? Normally, filing for divorce first is recommended. A Chapter 7 bankruptcy, in which debts, for the most part, are erased, is calculated on the amount of income a person has. After a divorce, a person’s income generally is less because it is no longer combined with the former spouse. It will be easier to meet the income requirements for a Chapter 7 bankruptcy at that time. A Chapter 13 bankruptcy plan, in which the debtor makes monthly payments to the Trustee so that creditors can be paid a fraction of what is owed, will not continue after a divorce if it is calculated on both spouses’ income. Such a plan will need to be revised or dismissed. It would be better if a Chapter 13 plan, based only on a single income, was created after the divorce has been settled.
3. Know which court controls what Divorces are under the jurisdiction of state courts, while bankruptcies are federal matters. A federal bankruptcy court will issue a stay on any effort by a state divorce court to divide property, at least until the bankruptcy court can decide if the split of property is fair and equitable. However, orders of a divorce court involving child custody and spousal or child support are not affected by a bankruptcy. It has long been understood that the bankruptcy courts should not be used as a way to modify or negate support orders. Also, if a property division is intended by a divorce decree to fund or serve as a means of spousal or child support, it will not be impeded by a bankruptcy filing, in most cases. Additionally, any clause in a divorce decree which requires one spouse to pay the debts of the other, can be enforced by the bankruptcy court in a later proceeding.
4. Recognize the need to adapt Both divorces and bankruptcies alter the ways we have lived our lives. Some activities we had the money for in the past will no longer be viable, and we may have to adjust to new homes, new jobs and new schedules. Sometimes, these changes can lead to frustration and resentment, but they also offer the possibility of a new beginning. Bankruptcy is designed to assist in rebuilding a new life, and divorce can do the same for us. Being flexible and open to compromise and change will make sailing the turbulent waters of divorce and bankruptcy easier.
Photo courtesy of orangesparrow via Flickr