Bankruptcy and Divorce: What You Need to Know

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When you get divorced, there can be emotional relief as you end a bad relationship, but there can also be financial fear. When you leave your spouse, you’re also saying goodbye to their income. This is such a relevant issue that many couples choose to stay together just for financial reasons. And those that don’t? Well, they could end up facing bankruptcy.


Sadly, bankruptcy and divorce often go hand-in-hand. You are suddenly down to one income and need to support two households. One of you may be paying child support or even spousal support. 


If you’re facing bankruptcy to eliminate debts, we’re here to help. Check out our tips on filing for bankruptcy after divorce, and how debts and assets are impacted.


Assets After Divorce

During divorce proceedings, you and your spouse’s assets will be divided. This is a standard process and is one most couples expect.


However, if one spouse later files for bankruptcy, the court can review the division of assets to determine if it is fair. If one partner is left struggling financially, the court could intervene. 

Debts in Divorce

Just like with dividing assets, a couple’s debts will also be reviewed and divided.


In most cases, divorce and bankruptcy get complicated when it comes to dividing the debts. These are handled through Equitable Distribution. If a couple has a lot of debts to divide, they both may opt to file for bankruptcy to have their debts discharged. 


However, how the debts are discharged depends on the type of bankruptcy that is filed. These are handled differently whether it’s Chapter 7 or Chapter 13.

Chapter 7 Vs. Chapter 13

You need to understand the key differences between Chapter 7 and Chapter 13 bankruptcy and how debt is handled in each. 


Chapter 7

Under Chapter 7, your assets may be liquidated to pay off some debts, but otherwise, after the bankruptcy is complete, most debts are discharged and you don’t need to pay anything toward them. 


However, not everyone can file for Chapter 7. You need to take a means test to prove your income is below a certain threshold. 


If you qualify to file for Chapter 7, you can discharge your medical debt and credit card debt, but you cannot eliminate secured loans, back taxes, or spousal and child support payments. 


This also does not erase any debts that one spouse may owe to the other. As you can imagine, this can get very complicated, very quickly! It’s essential to hire a bankruptcy attorney to handle any shared debts you have with your ex-spouse and any debts they owe you.


Chapter 13

Chapter 13 bankruptcy is much different from Chapter 7. Under this form of bankruptcy, you will create a court-approved repayment plan to repay debts over 3 to 5 years. When the bankruptcy is final, any remaining debts may be discharged.


This is ideal if you do not financially qualify for Chapter 7 bankruptcy, and if you want to protect assets that may be liquidated under Chapter 7. You can also use this to discharge debts assigned to you through the Equitable Reimbursement proceedings during the divorce settlement.


Like with Chapter 7, you cannot discharge any child support or spousal support payments. 


You should file Chapter 13 to eliminate your liability for a hold harmless clause in your divorce agreement. If you think a creditor will try to collect from your spouse, you can eliminate your liability from the creditor by filing for Chapter 13.


As with Chapter 7, debts in Chapter 13 bankruptcy can get very complicated and confusing. It’s essential to hire an experienced bankruptcy attorney to help you through the process.

Community Property

Another area your attorney can help you sort through is community property. The good news is, that Oregon is not a community property state, so this doesn’t get as complicated during bankruptcy proceedings. 


However, Washington is a community property state, along with California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Puerto Rico. This means that in these states, all assets acquired during marriage must be equally split between both spouses during a divorce. During bankruptcy, all community property will be considered an asset. 


To sort through community property, and guide you through the entire bankruptcy and divorce process, you need a trusted bankruptcy attorney to help.

Let Us Help You With Your Bankruptcy and Divorce

If you’re considering filing for bankruptcy after divorce, let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. help. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.

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