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Schertz Bankruptcy AttorneyFinancial issues are one of the most common factors that can lead to the breakdown of a marriage. Disagreements can range from a difference of opinion about how to handle savings, purchases, and the payment of expenses to more serious issues, such as one spouse hiding money from the other or wasting funds on lavish purchases or gambling. When a couple has significant debts, either spouse may feel that bankruptcy would be a good solution. However, this can be a difficult issue to address for a couple that is considering divorce or has already begun the divorce process, and if it is not handled correctly, it can lead to financial problems for both parties. When determining how to address bankruptcy and divorce, a couple can work with an attorney to determine the best approach to take.

Should We File for Divorce or Bankruptcy First?

Determining the appropriate time to file for bankruptcy will usually depend on the type of debt relief that one or both spouses are seeking. Spouses who have large unsecured debts, such as credit card balances, but do not have secured debts, such as home mortgages or auto loans, may be looking to file for Chapter 7 bankruptcy. In these cases, it may be beneficial for a couple to file for bankruptcy together before filing for divorce. As long as the spouses are able to pass the means test and complete other requirements during this type of bankruptcy, they can have their debts discharged before moving forward with their divorce. This will simplify the process of dividing marital property and ensure that both spouses will be able to move on with their lives and support themselves once their divorce has been finalized.

If a couple does not pass the means test to qualify for Chapter 7 bankruptcy, or if they have secured debts, they may be required to use Chapter 13 bankruptcy to consolidate and repay certain types of debts. It is usually not a good idea to do so before filing for divorce since this type of bankruptcy will create a repayment plan that will last between three and five years. Divorce will affect both parties’ financial circumstances and their ability to complete the repayment plan. If a couple has an existing repayment plan when they file for divorce, their bankruptcy case may need to be reopened and separated between the parties, or it may even be dismissed.

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Chapter 13 can write off some or all of the non-support debts included in your divorce. But it comes with some potential disadvantages.


Last week we explained how Chapter 7 cannot write off non-support divorce debts, but Chapter 13 can. We said if you owe a significant debt created by your divorce decree (for other than child or spousal support) you should talk with a bankruptcy lawyer. Don’t necessarily think that Chapter 13 is your best option with this kind of debt. Chapter 13 has advantages and disadvantages. We get into these now so you can start to see which option is best for you.

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Chapter 13 enables you to discharge—legally write off—some or all of any non-support debts included in your divorce. Chapter 7 does not do this.

“Discharging” a Debt or Legal Obligation

When you successfully complete a consumer bankruptcy, you get a discharge of some or all of your debts. When a debt is discharged the creditor is legally forbidden to take any action “to collect, recover or offset any such debt.” See Section 524 (a)(2) of the Bankruptcy Code. The debt has become legally uncollectible. So, one of your main goals in bankruptcy is to discharge all your debts, or as many debts as the law allows.

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Bankruptcy prevents or stops only certain limited divorce/family law proceedings. Others, including collection of ongoing support, continue.

Our last several blog posts have been about creditor collection actions stopped or not stopped by a bankruptcy filing. Today we get into divorce and family court related proceedings and debts.

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If getting separated or divorced while in a Chapter 13 case, you’ll likely each need a new lawyer for independent advice about what to do.

Last time we explained an important option for spouses filing a Chapter 13 together: “severing” their case into two if they later separate or divorce. That allows each spouse to do whatever they want to do with their side of the case. Each person can either continue in the Chapter 13 case, convert to Chapter 7, or dismiss out of bankruptcy altogether.

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