Sadly, very often divorce and bankruptcy deliver a one-two punch that sends formerly married couples reeling for years. Not only do the parting spouses face the pain and suffering of divorce, which can be one of life’s most stressful events, but they also recoil from the financial dislocation of bankruptcy, which can take years to eradicate.
Going into a divorce many people do not realize that they will come out poorer than they went in. The former spouses must now support two households rather than one and (very often) pay for the legal fees of two lawyers. If a spouse who was formerly a stay-at-home Mom enters the workforce, as is often the case, childcare and transportation expenses quickly mount up. Moreover, divorce orders may require alimony and child support, which are new expenses that often go on indefinitely.
In addition, in dividing the marital estate, jurisdictions use either equitable distribution, which means fairly, or the provisions of community property, which means by half. In either event, both spouses often come out owning less property than they had going in.
Bankruptcy can become a financial snake pit for divorced couples, and sometimes one spouse may file to escape the obligations of a property distribution. When one spouse begins a bankruptcy action, sometimes it is a good idea for the couple to file jointly, particularly when they have debts in both names. By filing jointly for bankruptcy, divorcing spouses avoid the battles associated with the division of assets and debts because the bankruptcy court settles it. Creditors hold both spouses jointly liable for debts.
Couples can file under Chapter13, which always them to reorganize over a three- to five-year period and keep certain assets, or under Chapter 7, which makes for a complete discharge of debts not secured by property.
Bankruptcy cannot be used to escape child support, alimony, student loans and criminal fines and penalties.