Facing financial difficulties or the end of a marriage can be overwhelming, but understanding your legal options is critical during these challenging times. The dedicated team of legal professionals at Marshack Hays Wood in Orange County can guide individuals through the intricacies of bankruptcy and divorce, ensuring they’re informed and supported every step of the way.
When both divorce proceedings and bankruptcy intersect, our Orange County, CA bankruptcy attorneys can explain the implications for your financial and personal future and the strategic approaches you can take to manage these situations.
With a commitment to clarity, compassion, and comprehensive legal experience, Marshack Hays Wood stands ready to assist you in turning a new page in your life with confidence and certainty.
To schedule a free consultation with an experienced Orange County bankruptcy attorney, call Marshack Hays Wood at (949) 333-7777 today.
Bankruptcy and Divorce Court: Which Should I File First?
One of the most critical decisions when considering bankruptcy and divorce is determining which to file first. This choice can significantly impact your financial and legal situation. Filing for bankruptcy before divorce can simplify the division of debt and assets in divorce court, potentially making the divorce process smoother and less expensive.
On the other hand, proceeding with divorce first might be advantageous in certain situations, especially if income thresholds affect your eligibility for bankruptcy options like Chapter 7. Each path has unique implications, and the best course of action depends on your individual circumstances, including the types of debts you owe, your income levels, and the nature of your marital assets.
Should I File Bankruptcy Before Divorce?
Filing for bankruptcy first can offer several advantages. It can streamline the division of marital debts and assets during the divorce process, potentially making it simpler and more amicable. By addressing shared debts through bankruptcy, you might minimize financial disputes in the divorce, and in some cases, this can lead to a quicker and less costly divorce settlement.
A joint petition might allow for greater debt relief options, especially if you qualify for Chapter 7 bankruptcy, which can discharge most unsecured debts.
Should I File Bankruptcy During Divorce?
Filing for bankruptcy amidst divorce can temporarily halt the division of assets and debts due to the automatic stay imposed by bankruptcy proceedings, potentially complicating and prolonging the divorce process.
For example, when you file bankruptcy during divorce proceedings, your non-exempt assets will become part of the bankruptcy estate. This means the division of assets will be put on hold until the bankruptcy case is complete.
However, in some scenarios, filing bankruptcy during divorce might be advantageous, especially if individual financial circumstances change significantly or if managing joint debts becomes unreasonable.
Should I File Bankruptcy After Divorce?
Deciding to file for bankruptcy after a divorce can be a strategic move, especially in scenarios where the divorce has left you with significant financial obligations or unmanageable debt. Post-divorce bankruptcy can offer a fresh financial start, allowing you to address debts solely in your name or those assigned to you in the divorce settlement. This timing can simplify bankruptcy proceedings since your financial situation is more clearly defined after separating marital assets and debts.
Evaluating your post-divorce financial landscape is crucial, as is understanding the implications of bankruptcy on your credit report and financial stability.
Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is a quicker process for discharging unsecured debt. This bankruptcy filing might be preferable for individuals seeking a clean financial slate post-divorce, especially if there are considerable joint debts or if one party is struggling with financial obligations after the divorce.
A Chapter 13 bankruptcy filing can benefit those with a steady income and wish to retain their assets, including property potentially awarded in the divorce settlement. It offers a structured repayment plan for debts, which can include divorce-related financial obligations, over a period of three to five years. This approach can be particularly beneficial for managing debts not discharged in the divorce or protecting co-owned property from being liquidated.
The choice between the two should be informed by factors such as the types and amounts of debt incurred during the marriage, the individual’s income stability, and the specific financial outcomes of the divorce. An Orange County bankruptcy lawyer from Marshack Hays Wood is vital in making an informed decision that aligns with your post-divorce financial goals.
Income Requirements for Chapter 7
Chapter 7 bankruptcy is designed for those with limited income, and its eligibility is determined primarily through the “means test.” This test compares your average monthly income over the six months prior to filing against the median income for a similar-sized household in your state. If your income is below this median, you’re typically eligible for Chapter 7. To learn more about the eligibility requirements and if Chapter 7 might be right for you, speak with an Orange County Chapter 7 bankruptcy attorney at our firm today.
Income Requirements for Chapter 13
Chapter 13 bankruptcy, often known as a wage earner’s plan, requires you to have a regular income sufficient to meet a repayment plan. Unlike Chapter 7, there is no means test for qualifying, but there are specific income requirements. Your income must be stable enough to make monthly payments to your creditors throughout the repayment plan, typically three to five years.
Your total debt also plays a role in eligibility; there are limits on the amount of secured and unsecured debt you can have to file for Chapter 13. These debt limits are periodically adjusted for inflation.
Filing Bankruptcy Jointly
Filing bankruptcy jointly can be a strategic decision for married couples with significant joint debt. This approach allows both spouses to combine their debts and assets into a single bankruptcy case, offering a unified solution to financial difficulties.
Joint bankruptcy can be more cost-effective and efficient, as it involves only one set of filing fees and legal costs, and it simplifies the process of dealing with shared debts, like credit card balances or loans.
It’s particularly beneficial when most of the couple’s liabilities are joint debts, as both parties receive the protections and discharge of bankruptcy, preventing creditors from seeking repayment from the non-filing spouse.
It’s important to consider individual financial situations as well since the assets and debts of both spouses are subject to the bankruptcy process. Joint bankruptcy may not be the best choice if one spouse has a significant amount of separate debt or assets they wish to protect.
What Debts Will My Bankruptcy Discharge?
Bankruptcy can discharge various debts, relieving individuals overwhelmed by financial burdens. In a Chapter 7 bankruptcy, many unsecured debts, including credit card balances, medical bills, personal loans, and utility arrears, can be discharged.
Similarly, Chapter 13 bankruptcy allows for the reorganization of these debts into a manageable repayment plan, often leading to a partial or total discharge at the end of the plan period. Chapter 13 can be especially beneficial if you’re behind on mortgage payments and want to keep your home.
Can Bankruptcy Erase My Divorce Debt?
Bankruptcy can impact divorce-related debts, but not all divorce debts are treated equally in bankruptcy proceedings. In a bankruptcy case, obligations like child support and alimony are considered “priority debts” and are not dischargeable. This means that filing for bankruptcy will not erase your responsibility to pay.
Other types of debts arising from a divorce proceeding may be treated differently. For instance, debts assigned to you in a divorce settlement, such as credit card debts or personal loans, can often be discharged in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, these debts may be included in the repayment plan, potentially allowing for a reduction in the amount paid.
It’s also important to note that the division of property and other financial obligations decided in the divorce decree, like payment for joint marital debts, may have different outcomes in bankruptcy. These can sometimes be discharged under Chapter 13 but not under Chapter 7.
Can I Discharge Court Fees and Legal Fees in Bankruptcy?
Discharging court fees and legal fees in bankruptcy depends on the type of debt and the nature of the bankruptcy filed. In Chapter 7 bankruptcy, certain attorney fees and other general unsecured debts can be discharged.
However, there are exceptions. For instance, fees associated with criminal cases, certain family law attorney fees, and penalties or fines imposed by courts generally cannot be discharged.
In a Chapter 13 bankruptcy, these debts can be included in the repayment plan. While this may not lead to a full discharge, it can significantly reduce the amount you need to pay, making them more manageable.
What Kinds of Debt Can’t I Discharge?
In bankruptcy, while many debts can be discharged, providing financial relief, several types of debt are typically non-dischargeable. These debts include child support and alimony payments, which are prioritized for importance.
Certain tax obligations, especially recent income taxes, and taxes for which returns were not filed, are also non-dischargeable. Student loans generally remain, except in rare cases of proven undue hardship.
How Do Bankruptcy and Divorce Affect Property Division?
Filing for bankruptcy during a divorce can temporarily halt property division due to the automatic stay, affecting the distribution of assets and debts. Whether marital assets and debts are discharged in bankruptcy can influence what remains for division in the divorce settlement. Furthermore, decisions made in the divorce, such as property settlements and alimony, can impact eligibility and terms for bankruptcy.
Discharging Marital Debt
Discharging marital debt in bankruptcy depends on several factors, including the type of bankruptcy filed, the nature of the debt, and whether the debt is joint or individual. In a Chapter 7 bankruptcy, joint marital debts, such as credit card balances or personal loans, may be discharged if the bankruptcy filer qualifies for this type of bankruptcy and the debts meet the discharge criteria. In a Chapter 13 bankruptcy, these debts can be included in the repayment plan, potentially allowing for a reduction in the amount paid.
However, it’s important to consider the implications for the non-filing spouse, as they might still be responsible for the debt. For example, if the ex-spouse files for bankruptcy, certain debts may come back to haunt the non-filing spouse. If the bankruptcy court has discharged one spouse’s debt, there’s a chance that creditors will call the other spouse when seeking payment. This reimbursement from the former spouse must be handled in family court.
Additionally, certain debts related to divorce settlements, like spousal support or property division, are typically considered non-dischargeable debt.
Contact a Divorce-Related Bankruptcy Attorney with Marshack Hays Wood
Choosing the experienced bankruptcy attorneys at Marshack Hays Wood can be crucial to managing the complexities of divorce and bankruptcy. Our dedicated team of attorneys understands individuals’ unique challenges when navigating both legal processes simultaneously.
With a deep knowledge of bankruptcy law and its interconnections with family law, we provide tailored guidance to protect your financial interests and ensure a smoother transition to a more secure financial future.
Whether addressing the dischargeability of marital debts, protecting your assets, or guiding you through bankruptcy during divorce, our attorneys are committed to providing comprehensive, compassionate, and expert legal support. Marshack Hays Wood is your trusted partner in achieving financial stability and a fresh start during challenging times.
To discuss your divorce and bankruptcy case with an experienced Orange County bankruptcy attorney, call Marshack Hays Wood at (949) 333-7777 or reach out online today to schedule a free consultation.
