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Bankruptcy and Divorce

Financial problems often co-exist with people thinking about divorce, in the midst of divorce, or following a divorce. Financial problems often are the cause of divorce. The Bankruptcy Code specifically addresses issues related to those who divorce. If the Bankruptcy Code is not followed properly, debts that you agree to pay in the divorce, but are no longer able to pay following it, may not be discharged. You could still be responsible for paying the debts even though you filed bankruptcy. Smith & Weer is one of a limited number of law firms that focuses its practice not only on bankruptcy, but on divorce, as well.

People in this unenviable position must receive the proper advise. Smith & Weer can provide the needed advise. People need to be aware of whether they should file bankruptcy before completing their divorce, or to file bankruptcy after their divorce is completed. That decision, like many others, depends on the individual’s circumstances. Ideally, for two people who have decided to part ways, it is best to cooperate with one another in order to lessen the cost of divorcing. Two people, while still married, can file bankruptcy together. Following divorce, that is no longer true; they would have to file separate cases, doubling the cost.

The obvious advantage of filing together is that two people can file bankruptcy for the price of one. At least that’s true at Smith & Weer where we don’t charge an additional fee for the second person; the price for two people to file is the same as if one files. If a divorcing couple has moderate to significant debt, but average income, it may be best if they were to join together and file bankruptcy before the divorce is finalized. That way, they start off their new lives apart without the burden of debt. And, the apportionment of the debt does not complicate the divorce.

The axiom that the cost of two people living together is nearly equal to that of one vanishes when the two go their separate ways. The additional costs of living apart can be compounded when children are involved. There is child support, medical expenses, schooling, and other expenses associated with the children that both parents must share. Parents want to provide the best for their children. When debt stands in the way of caring for loved ones following the divorce, the adjustment of living on only one income is much more difficult.

Other debt problems may exist for divorcing couples. A common example is when both parties are jointly obligated on a car loan. The divorce decree will award the car to one party, and make him or her responsible for the debt. The other party may believe that he or she is therefore secure in thinking that the car debt will no longer be a problem. However, what many people fail to understand is that the car debt will continue to be shown on his or her credit report, making it difficult for him or her to obtain credit. Worse, many people don’t understand that should the spouse who is awarded the car default on the payments, the car lender can still sue the party who didn’t receive the car in the decree even though his or her spouse was court ordered to assume the debt. Many people aren’t told by their attorney that the divorce decree is not binding on the lender, because the lender is not a party to the action. Being sued by a lender can oftentimes lead to bankruptcy. This may happen at a time when it is least convenient for the now single party. It’s better to plan ahead. Think about what could go wrong, because if you’re placed in a vulnerable position following a divorce, being sued by a creditor is something you can’t afford.

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