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Some of the complications a bankruptcy adds to divorce, are explained by John Griffith, a San Diego divorce lawyer.
"When deciding to get divorced while going through bankruptcy, several legal issues are added," says Griffith. "If chances of bankruptcy are high, filing for bankruptcy prior to divorce may be advisable."
The most common types of bankruptcy are Chapter 7 and Chapter 13.
Chapter 7, commonly known as liquidation bankruptcy, permits the liquidation of all assets and pay off debts using those proceeds. Any debts which cannot be paid can be erased.
One is usually allowed to keep their home and cars so long as payments are maintained.
Stipulations which involve income limitations and other qualifications prevent everyone from filing Chapter 7. A common alternative is Chapter 13 bankruptcy.
"Chapter 13 allows one to recover financially," says Griffith. "Repossessions and foreclosures are stopped and secured debt payments such as mortgages, car notes and certain portions of unsecured debt such as medical bills and credit cards are scheduled for repayment."
A determined monthly amount is paid to a trustee each month. The money is distributed among the creditors until debts are resolved.
Griffith says the court won't grant a Chapter 13 bankruptcy if one owes past-due alimony, child support and taxes, nor can these debts be erased by filing a Chapter 7 or Chapter 13 bankruptcy.
Costs are lower when a couple files joint bankruptcy versus filing separately after their divorce.
The divorce attorney says that even if the couple doesn't live together, they can file for bankruptcy jointly. Waiting until after a divorce to file could result in two separate cases needing to be filed.
A couple may choose to file for bankruptcy jointly before filing for divorce in order to work through substantial debts since property within the bankruptcy estate cannot be divided by the divorce court.
"Filing a joint bankruptcy permits the couple to work through their debts and divide properties before divorce proceedings," says Griffith. "Property division is simplified and one can avoid liability for an ex-spouse's debts after divorce."
Griffith says modification of support orders can be requested when either party files bankruptcy after a divorce.
While a bankruptcy is pending, the court retains the authority to determine child support orders, child visitation and custody issues.
Discharged debt in a bankruptcy can result in freed income to be used by the court to increase a support order.
If one is ordered to pay certain debts as part of their divorce settlement, it is suggested they file for bankruptcy prior to the divorce decree to erase them
Griffith recommends consulting with an attorney experienced in family law before filing for bankruptcy or divorce to determine what options are best.
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