It’s no secret that divorce can be a financially taxing experience. For couples with large amounts of unsecured debt, bankruptcy may come into the picture.
Divorce and bankruptcy are two distinct legal processes, yet they often intertwine, particularly when financial stress contributes to marital discord. In Florida, where the cost of living can be high and economic downturns impactful, it’s not uncommon for couples to face both simultaneously.
There are many intricacies to navigate when considering bankruptcy in the context of divorce. Below, we address some of them. Make sure to speak with a lawyer about your unique situation, as every divorce and bankruptcy is different.
Chapter 7 vs. Chapter 13 bankruptcy
When considering bankruptcy during a divorce, it’s important to understand the differences between the two primary types of consumer bankruptcy – Chapter 7 and Chapter 13. Each affects divorce proceedings differently. Here are the basics:
- Chapter 7 bankruptcy: Frequently referred to as “liquidation bankruptcy,” this type entails the sale of non-exempt assets and subsequent discharge (erasure) of unsecured debts. The process for Chapter 7 is typically faster than Chapter 13. It often takes only a few months to complete. Filing for Chapter 7 before divorce can simplify asset division, as it clears away unsecured debts, allowing for a cleaner financial slate.
- Chapter 13 bankruptcy: Also known as “reorganization bankruptcy,” this process involves restructuring debts into an affordable repayment plan that lasts three to five years. Chapter 13 bankruptcy can complicate divorce proceedings due to its longer duration. If you are in a Chapter 13 repayment plan, you must continue making payments, which can be challenging during and after a divorce.
Timing matters: Filing for bankruptcy before or after divorce
Deciding whether to file for bankruptcy before or after a divorce depends on several factors, including the type of bankruptcy, the nature of marital debts and individual financial situations. Here are some considerations to think about:
- Filing before divorce: This approach can be advantageous if both parties are on the same page about bankruptcy, as it can simplify the division of debt and assets. It may also reduce legal fees, as the parties can file jointly and split the costs.
- Filing after divorce: Opting to file after divorce may be necessary if cooperation between spouses is not possible. However, this can lead to complications, such as dealing with joint debts and the impact on alimony or child support obligations.
How bankruptcy impacts alimony and child support
Bankruptcy does not discharge obligations for alimony or child support. These debts are prioritized, meaning that even if you file for bankruptcy, you are still responsible for meeting these obligations. It’s important to consider how bankruptcy might impact your ability to pay or receive these critical financial supports.
Property division and bankruptcy
Asset and debt division is a key component of divorce, and bankruptcy can influence how assets and debts are divided. Florida is an equitable distribution state, meaning assets are divided fairly, though not necessarily equally. Filing for bankruptcy before divorce can sometimes simplify this process by reducing the pool of assets to be divided. If you decide to pursue bankruptcy after asset division is complete, you will need to carefully consider how the bankruptcy might affect your financial obligations and the ownership of the divided assets.
It’s important to note that once assets and debts are divided in a divorce, those allocations remain the responsibility of the individual parties. Filing for bankruptcy post-divorce may provide relief from certain debts, but it does not alter the division of property or change the responsibility for joint debts.
Making informed choices
As you can see, the intersection of divorce and bankruptcy involves many nuanced considerations. Understanding the interplay between these legal processes in Florida can help you make informed decisions that set the stage for a more stable financial future. Always seek professional legal advice to navigate these major decisions successfully and in alignment with your vision.