Divorce and Bankruptcy
By M. Scott Gordon
We often hear about recent Chicago area divorcees who are now having financial problems. To be sure, it is difficult for many people to live on much less monthly income than what they became accustomed to during the marriage. Given that divorce can result in financial difficulties, it is not uncommon to learn that a recently divorced friend or relative is thinking about filing for bankruptcy. Indeed, an article in Forbes Magazine suggests that divorce and bankruptcy are two words that appear together with some frequency. But what leads a couple to consider bankruptcy before divorce? If you are separated from your spouse and are thinking about filing for bankruptcy in the Chicago area, what considerations do you need to take into account?
The issue of divorce and bankruptcy is a big one, but we will try to address some key questions and concerns for anyone considering bankruptcy before or after filing for divorce.
Considering Bankruptcy and Marital Debts Before Divorce
If you are having financial problems and are having difficulty managing debt, it is important to consider bankruptcy both before and after you file for divorce, considering the pros and cons of each. Generally speaking, whether you should file for bankruptcy before or after you file for divorce depends upon your income, your debts, and the type of bankruptcy protection you plan to seek.
First, we should address debts. Are the debts for which you are considering bankruptcy joint debts? In other words, are those debts property of both you and your spouse? For instance, the majority of your debt might concern credit cards that are currently maxed out, and both you and your spouse have the credit card accounts jointly and both charge items onto them. Or, you and your spouse might have made a major purchase together and thus share the debt owed to a creditor. When debts are owed jointly, it may be a good idea to file jointly for bankruptcy before you dissolve your marriage so that the division of marital property will go smoothly and will accurately reflect marital assets and debts. However, whether you decide to file for bankruptcy before your divorce could depend upon whether you plan to file for Chapter 7 or Chapter 13 bankruptcy.
Looking at Income and Thinking About Divorce
If your income allows you to file for Chapter 7 bankruptcy and you plan to liquidate assets in order to discharge debts, then filing for bankruptcy before divorce may be the best option for you. These bankruptcy proceedings are completed much faster than Chapter 13 bankruptcy, which requires debtors to develop and complete a repayment plan. As we mentioned above, completing a Chapter 7 bankruptcy tends to be a faster process than completing a Chapter 13 bankruptcy.
As part of a Chapter 13 repayment plan, a debtor (or debtors, in the case of spouses), debtors must have a plan through which they make payments that last between three and five years. As such, if you file for Chapter 13 bankruptcy just before filing for divorce, you will be dealing with the repayment plan for years to come with your ex-spouse.
Contact a Chicago Divorce Attorney
If you have questions about how financial problems may impact your divorce, you should speak with an experienced Chicago divorce lawyer as soon as possible. Contact Gordon & Perlut, LLC to discuss your situation.