Friday, July 17, 2015

Divorce and Bankruptcy FAQ

It's no secret that divorce and bankruptcy go hand in hand.  Bankruptcy can be a good way to finalize your divorce and get rid of all of your debts that you incurred while married.  There are however some nuances to filing bankruptcy while in the process of getting divorced that you should consider.  I've put together a list of FAQ that I get asked often when discussing divorce and bankruptcy.

1. Am I liable for my spouse's credit card debt? 
Not usually.  Unless you specifically co-signed on the debt.  

2. What if my spouse files for bankruptcy, do I have to file too? 
Not necessarily.  If your debt is truly separate then only the person who has the debt in their name needs to file.  But if you have joint debt, if one person files the other person remains liable for the debt.  This is why it's recommended that you file one joint bankruptcy petition while still married to discharge ALL debt.  

3. Can we file one bankruptcy petition while married? 
Yes.  It's easier and cheaper to file one petition while you are still married.  You can be separated you just have to still be legally married.  Once you divorce you must file 2 separate bankruptcy petitions. 

4. What about child support? Can that be discharged in bankruptcy? 
A big fat NO. 

5. I owe $50,000 to my divorce attorney, can I include this debt in my bankruptcy? 
This is a tricky one.  If the attorney fees are YOUR fees and they are not associated with child support or child custody issues then you can probably discharge them in your case.  If you were assigned to pay your spouse's attorneys fees then you probably cannot discharge them in bankruptcy. 

6. My spouse and I both own our house together and have a mortgage on the home.  I don't want the home but my spouse does.  Can I file bankruptcy and get rid of my house? 
Sort of.  If you file for bankruptcy and list your home as as property to be surrendered, then the mortgage company can never come after you for a deficiency balance if it goes to foreclosure.  But you remain the legal owner of the home until your name is removed from the title in a sale.  Bankruptcy does not remove your name from the title of the home.  Instead, it relieves you of personal liability in paying the mortgage.  Your spouse can remain in the home and if they keep paying the mortgage they can keep the home.  This means that you should try to sell the home or refinance the property to remove your name from the title at a future date. 

7. My spouse and I owe taxes to the IRS.  Can we discharge those in bankruptcy?  
Maybe.  There are very specific rules to discharging IRS debt in bankruptcy.  See your local bankruptcy attorney to discuss them.  If you believe you did not incur the tax liability and your spouse only did you can try to contact the IRS for an innocent spouse form to try and get out of the debt obligation. 

Other issues that can have an impact on your bankruptcy case during a divorce are:
  • dividing assets
  • dividing retirement accounts
  • alimony/child support payments
  • assigning debt to the other party in your divorce decree
  • who pays the divorce attorney fees

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