Should You File for Bankruptcy Before or After a Divorce?
Bankruptcy and divorce often follow one another closely as both spouses are trying to move from having joint income and expenses to supporting two separate households. Complex divorces can easily cost thousands of dollars making it more difficult to pay other bills. Spouses will often fall behind on other obligations as they try pay attorney’s fees and costs in addition to living expenses on one income. Because the intersection of these two different laws can become very complex very quickly, you need an experienced Michigan bankruptcy attorney to advise you of your rights and analyze your situation to advise you of the best course of action.
Bankruptcies fall under federal law while divorces fall within the jurisdiction of state law. While federal law typically trumps state law, there are certain circumstances where you must be careful when you are dealing with a divorce and a bankruptcy.
Joint debts in divorce and bankruptcy
If you are jointly liable for a debt with another person, the lender can seek payment from both of you or either one of you. If one person files a bankruptcy case to discharge the debt, the lender can proceed to collect the full amount owed from the co-debtor. This happens frequently in bankruptcy cases where only one person files a bankruptcy case. However, a divorce action can further complicate this matter. Typically during the divorce, the family court will divide debts as well as assets. Each spouse will be assigned to pay various marital or individual debts. Unfortunately, the family court order does not change the contractual obligation of either spouse with regard to the lender. Therefore, if the spouse who is charged with paying the debt fails to make the payments, the lender may proceed to collect the funds from the other spouse. The “innocent” spouse’s only recourse is to take the non-paying spouse back to family court for contempt on failing to abide by the terms of a family court order.
The same holds true when a bankruptcy is involved. Let us assume that the husband filed bankruptcy but he was charged by the family court to pay a joint marital debt. His bankruptcy case will discharge or release him for any liability for the payment of this debt. However, his wife could take him back to family court if he fails to voluntarily pay that debt as ordered by the family court. Therefore, parties should seek the advice of an experienced Michigan bankruptcy attorney to advise him or her of the best course of action prior to filing a bankruptcy case in the midst of a divorce.
Income, Bankruptcy and Divorce
Your income has a direct impact on the chapter of bankruptcy you qualify to file, as does the number of people living in your home. For a couple with three children, their joint household income may qualify them to file a joint Chapter 7 bankruptcy case to discharge unsecured debts in 4 to 6 months. In some cases, this may be advantageous to do prior to the divorce action as you can only file a joint bankruptcy case if you are married.
Where we see an issue is when the spouses have separated or completed the divorce. One or both spouses may now be required to file a Chapter 13 bankruptcy case because their income is now over the state median income level for a Chapter 7 due to the fact that they are a one-person household (the children live with the other spouse). The income for a family of 5 is much higher than the allowed income for a family of 1 when determining eligibility for a Chapter 7 bankruptcy. Now the ex-spouse may be placed in a position of filing a Chapter 13 bankruptcy case to pay back some or all of his debts over a 3 to 5-year period.
Prior to making this decision, it is advisable to seek the counsel of an experienced bankruptcy attorney. In most cases, your bankruptcy attorney can communicate with your divorce attorney to ensure that a solution is developed that is in the best interest of both parties. This also includes the divisions of assets, as those may also be a factor in your bankruptcy case. By seeking the advice of a skilled Michigan bankruptcy attorney, you can avoid many of the problems associated with divorce and bankruptcy.
Who do I call with questions about divorce and bankruptcy?
You call The Law Office of Gene F. Turnwald to schedule a free bankruptcy consultation. Attorney Turnwald has over 21 years of experience dealing with these sensitive issues and can help you decide what the best course of action is for you with regard to a divorce and bankruptcy. He can work with your divorce attorney to develop a plan that will resolve your debt problems as well as protect you in the divorce proceeding. Call us today to schedule your appointment to find out how we can help you get a fresh start to begin rebuilding your life after a divorce and financial crisis.