Bankruptcy and Divorce: How Does One Affect the Other?
Divorce and bankruptcy are some of the most stressful and complex events an individual will face during their lifetime. To add to the difficulty, it is not uncommon for the two situations to overlap. Typically, a married couple will file for bankruptcy and begin their journey to a fresh start financially. When a couple is looking to get a divorce as well, on the other hand, the filing of one can influence the outcome of the other.
When you are looking to file for bankruptcy and divorce at the same time, it is crucial that you take the time to consider the implications of both. This is best done with the help of a Mobile, AL, bankruptcy attorney to ensure you make the best decision for your unique situation. Below are just a few ways bankruptcy and divorce can influence each other.
Income Qualifications for Bankruptcy
Did you know that your income could determine which chapter of bankruptcy you can file? For couples filing jointly, their combined income is taken into account. A low combined income can qualify you for Chapter 7 bankruptcy, meaning you sell a number of your assets to pay off your debts. Whatever debts are left over are typically discharged within 4-6 months.
A higher income usually means you will file for Chapter 13 bankruptcy, consolidating your debts into a monthly payment spread over 3-5 years. Depending on your finances and the state of your relationship with your spouse, it may be beneficial to file for divorce and then have each person file for bankruptcy separately. Others may find it better to file bankruptcy, get the proceedings over quickly, and move forward with the divorce.
One of the most taxing parts of filing for bankruptcy during divorce proceedings is determining which party is responsible for which debts. Even the most mutual and clear-cut allocations have the potential to cause each person to trouble down the road. This is because naming one spouse as the individual responsible for a certain debt does not completely remove the other spouse’s responsibility. This is especially troubling if the assigned spouse is unable to pay their portion of the debt.
Additionally, if a spouse needs to file for bankruptcy again in the future, they cannot discharge the debts they agreed to pay during the divorce. In these cases, it could be in the best interest of both individuals to complete the bankruptcy process before filing for divorce.
One of the most important parts of filing for bankruptcy is property exemption. This is when you can exempt certain assets, such as a house or car, from bankruptcy filings. Doing so can be the difference between having to sell your home to pay off your debts and keeping your home while selling other assets that may be of less importance to you and your family.
Property exemption laws vary from state to state and have the potential to change as new laws are passed. However, at the time of this writing, the state of Alabama allows couples to double the amount of property they are exempt from. This is a vital consideration for many families, often helping them make a choice between filing for bankruptcy and divorce at the same time or completing the bankruptcy process first.
Seek a Bankruptcy Attorney in Mobile, AL to Navigate Bankruptcy and Divorce
Each couple has a different situation that has led them to both bankruptcy and divorce. Being in the dark about how filing for bankruptcy during divorce proceedings affects the outcomes of both events can be costly. Before making any decisions regarding bankruptcy for your family, it is highly recommended to seek the advice of a bankruptcy attorney in Mobile, AL, to ensure that you are making an informed and appropriate choice.
To get started working toward your new future, contact the team at Loris Bankruptcy Law Firm. We have the experience and compassion you need during this difficult time. Call today at (251) 432-3100.