Bankruptcy After Divorce: What's at Stake?
Divorce is a life-altering event, and for many individuals, it comes with significant financial upheaval. Once the divorce has been finalized, the division of property, spousal support, and other financial obligations can sometimes leave one or both parties struggling to stay afloat. For some, this financial strain may lead to filing for bankruptcy. But how does filing for bankruptcy after a divorce impact your situation?
At The Law Office of Marc G. Alster, based in Hackensack, New Jersey, Attorney Alster is committed to working with you to explore whether bankruptcy might be the right answer for your situation to help you protect your financial future post-divorce.
The Interplay Between Divorce and Bankruptcy
Bankruptcy and divorce often intersect in a variety of ways. Divorce proceedings tend to leave individuals financially vulnerable, with mounting legal fees, reduced household income, and new financial responsibilities, such as child support or alimony. If you add credit card debt, medical bills, or a struggling business to the mix, filing for bankruptcy could serve as a necessary step toward achieving financial stability.
Key Financial Concerns Following Divorce
After a divorce, several key financial concerns may arise. While every case is unique, the primary financial struggles that spouses tend to experience include the following.
Responsibility for Existing Debt
During the divorce process, the court divides debts the same way it divides assets. While New Jersey is an equitable distribution state, meaning debts and assets are distributed fairly (though not necessarily equally), this division does not absolve you from joint debt agreements with creditors.
For example, if you and your ex-spouse were co-signers on a loan or shared a credit card, creditors can still attempt to collect from you, even if the court assigned that debt to your ex-spouse. This scenario is further complicated if your ex-spouse files for bankruptcy, potentially leaving you solely responsible for repayment.
Asset Division
Property and asset division are also factors that may influence a post-divorce bankruptcy. If you and your spouse accumulated substantial assets during your marriage, such as real estate, retirement funds, or vehicles, the division of those assets may leave you with limited financial resources. Some individuals may find themselves overleveraged with assets they cannot afford to maintain or repay, which can lead to further financial strain.
Support Payments
Obligations such as child support and alimony can quickly become overwhelming for the paying spouse, especially if their income was reduced following the divorce. While bankruptcy can provide financial relief in many cases, certain obligations, particularly court-ordered child support or spousal support payments, cannot be discharged in bankruptcy. Therefore, filing for bankruptcy will not eliminate these responsibilities, even if financial hardship makes them difficult to manage, and in certain cases Bankruptcy Courts will not issue the sought after "Discharge Order" to debtors if they are behind their child support or even alimony payments - thereby denying the debtors "A Fresh Start".
Timing Matters in Bankruptcy Cases
Facing bankruptcy after a divorce can be overwhelming, accordingly, it's important to note that timing is critical when it comes to bankruptcy and divorce. Filing for bankruptcy before, during, or after the divorce process can have different implications for your financial state, legal obligations, and relationship with your ex-spouse.
Filing After Divorce
Filing for bankruptcy after a divorce is a common course of action for individuals who were left in financial hardship due to the division of debt and property. A post-divorce bankruptcy allows you to independently address your financial state and discharge certain obligations and unsecured debts.
However, during this process, it’s essential to remain aware of obligations that cannot be discharged, such as child or spousal support, student loans, and certain tax debts. To maximize your financial outcome, it’s advisable to consult an experienced bankruptcy attorney who can structure a strategy tailored to your unique circumstances.
Which Chapter Should You File?
Choosing the right bankruptcy chapter depends on your financial situation and long-term goals. Most individuals choose to file either Chapter 7 or Chapter 13 bankruptcy. An experienced bankruptcy attorney can help you determine the best course of action based on your specific situation.
Chapter 7 Bankruptcy
Chapter 7, also known as liquidation bankruptcy, is ideal for those struggling with overwhelming unsecured debt and insufficient income to meet their financial obligations. Chapter 7 allows you to discharge qualifying debts, such as medical and credit card bills; however, any non-exempt assets will be liquidated (sold) to pay back your creditors. See other article in this website entitled "BANKRUPTCY EXEMPTIONS" in the Bankruptcy Overview section of this website.
It’s important to consider the impact of Chapter 7 on your divorce-related obligations. While this type of bankruptcy can alleviate debt loads, alimony/maintenance and child support payments and obligations stemming from divorce settlements or judgments cannot be discharged. On the other hand, obligations incurred through property settlement agreements, that are separate and apart from any support obligations, may be able to be discharged
Chapter 13 Bankruptcy
If you have a steady income but need time to reorganize your finances, Chapter 13 bankruptcy may be right for you. This option allows you to develop a repayment plan that lasts three to five years, making it easier to manage debts while protecting key assets, such as your home or car.
For some individuals, Chapter 13 can also provide a vehicle to avoid a foreclosure or repossession, offering stability during a time of financial uncertainty. However, it's important to be aware that child and spousal support obligations are typically unaffected by filing for Chapter 13 bankruptcy as well.
Seek Experienced Guidance for Bankruptcy After Divorce Today
Filing for bankruptcy after a divorce is a major decision that should not be taken lightly. Every financial situation is unique, and working through both a divorce and the bankruptcy process can be overwhelming. However, experienced legal guidance can help you determine the right type of bankruptcy, when to file, and how to best advocate for your future financial stability.
The Law Office of Marc G. Alster is committed to providing compassionate and personalized support to individuals in Hackensack, New Jersey, and throughout both New Jersey and New York. With decades of experience in bankruptcy law, Marc G. Alster understands the financial and emotional toll these situations can take, and he works tirelessly to help his clients find tailored solutions that set them on the path toward a brighter future.
Whether you need assistance determining the right bankruptcy chapter, understanding your obligations, or strategizing for long-term financial recovery, Marc G. Alster is here to help. Contact The Law Office of Marc G. Alster today to schedule a consultation and take the first step toward rebuilding your financial stability.