A divorce can be a difficult and emotionally trying time. Not only do you have to deal with the emotional upheaval of splitting up with your spouse, but the two of you will also have to untangle your financial lives as well. If you and your spouse have significant debts, one question you may need to address during the divorce process is whether or not to file for bankruptcy. While doing so may provide you with some financial relief, you will want to make sure to handle these issues correctly so that you will both be able to move forward successfully after your marriage has ended.
When filing for bankruptcy, you generally have two options: Chapter 7 or Chapter 13. These options both have advantages and disadvantages, and the option you choose may also have an impact on financial matters that will need to be addressed during the divorce process. By understanding how different types of bankruptcy cases will be handled, you can make the best choices during your divorce that will provide you with financial security in the future.
Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 7 bankruptcy is sometimes referred to as “liquidation bankruptcy” because it may require you to turn over some of your assets in order to pay off your debts. In contrast, Chapter 13 bankruptcy allows you to avoid the loss of your property while repaying some of your debts over time.
Because a Chapter 7 bankruptcy can often be completed fairly quickly, it may be a good option for you and your spouse during your divorce, as long as you are willing to cooperate and work together to address financial concerns. The two of you can file for bankruptcy together and eliminate multiple different types of debts, such as the balances on joint credit cards. In most cases, you will be able to keep essential belongings, such as vehicles, tools of the trade, personal items like clothing and furniture, and some of the equity you own in your home. A Chapter 7 case usually takes about four to six months to complete. Once you have discharged your debts, you will then be able to make decisions about how ownership of marital property and other financial matters will be handled during your divorce.
Chapter 13 bankruptcy, which is also known as “reorganization bankruptcy,” will require you to enter into a repayment plan. The plan will last for three to five years, and at the end of the plan, any remaining debt will be discharged. Since this type of bankruptcy takes longer to complete, and it will require ongoing payments, it is usually not the best option for those who are planning to get divorced. If you and your spouse file for Chapter 13 together, you will remain financially tied to each other during your repayment plan, and you will both be required to make ongoing payments until the plan is complete. This could prevent you from addressing other issues related to your property and finances during your divorce.
If you are considering Chapter 13 because it may allow you to avoid losing your home or other property, you will most likely want to wait until your divorce has been finalized before filing for bankruptcy. After working out the details of your divorce and determining what property you will keep and what debts you will be responsible for paying, you can decide whether a Chapter 13 bankruptcy will be right for you, and you can make arrangements to pay off debts through a repayment plan while meeting any other financial obligations that you may have, such as the payment of child support or spousal support.
Contact Our Hudson Valley Divorce and Bankruptcy Attorney
Deciding which type of bankruptcy is right for you will depend on many factors, including your income, debts, and assets. Determining how to address these issues can be a complex process, especially if you are in the midst of the divorce process. To ensure that your rights and interests will be protected, it is important to speak with an experienced attorney who can help you understand the best ways to handle issues related to both divorce and bankruptcy. To learn how Law Offices of Robert S. Lewis, P.C. can address your needs in these areas, contact our Rockland County bankruptcy and divorce lawyer at 845-358-7100 and schedule a free consultation.