Divided lives, divided debts: Can bankruptcy help after divorce?

On Behalf of | May 31, 2024 | Bankruptcy |

Divorce is a complex emotional and financial ordeal. Splitting assets, managing separate households and potential alimony payments can leave you feeling overwhelmed by debt. If you’re struggling financially after your divorce, you might be surprised to learn that bankruptcy can be a powerful tool for a fresh start.

Bankruptcy is a serious legal decision. Before considering this option, it is crucial to consult with a qualified attorney and a bankruptcy professional.

The financial fallout of divorce: A debt spiral

Divorce can often lead to a significant increase in debt. Here’s how it can happen:

  • Division of marital assets: Selling assets to divide their value can create capital gains taxes, adding to the financial burden.
  • Increased living expenses: Maintaining two separate households can be significantly more expensive than one.
  • Legal fees: Divorce lawyers can be costly, adding to existing debt.

If you’re drowning in debt after your divorce, bankruptcy may offer a path to financial freedom.

Understanding your options: Chapter 7 vs. Chapter 13

There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. Here’s a breakdown of each:

  • Chapter 7 Bankruptcy: This option allows liquidating certain assets to pay off creditors. However, some assets like your primary residence and car may be exempt under state law. After the liquidation, most unsecured debts (credit cards, medical bills) are discharged, giving you a clean slate.
  • Chapter 13 Bankruptcy: This option involves creating a court-approved repayment plan, typically lasting 3-5 years. During this period, you make monthly payments to a trustee who distributes the funds to your creditors. At the end of the plan, any remaining eligible debt is discharged.

Choosing the right chapter for your situation requires careful consideration of your income, assets and debt amount. An experienced bankruptcy attorney can guide you through this process.

Benefits of bankruptcy after divorce: A path to stability

Filing for bankruptcy after a divorce can offer several advantages:

  • Debt relief: Eliminating or significantly reducing your debt burden allows you to breathe easier and manage your finances more effectively.
  • Fresh start: Bankruptcy can provide a clean slate, allowing you to rebuild your credit score and pursue financial goals.
  • Focus on the future: By freeing yourself from overwhelming debt, you can focus on building a secure financial future for yourself and any dependents.

It’s important to remember that bankruptcy has limitations. Student loans, child support and alimony are generally not dischargeable in bankruptcy.

Considering bankruptcy? What to do next

If you’re considering filing for bankruptcy after a divorce, here are some initial steps:

  • Gather your financial documents: This includes bank statements, pay stubs, tax returns and debt records.
  • Consult with a bankruptcy attorney: An attorney can assess your situation, explain your options and guide you through the filing process.
  • Seek credit counseling: A credit counselor can provide financial education and help you develop a budget for moving forward.

Bankruptcy can be a powerful tool for financial recovery after divorce, but it’s not a decision to take lightly. Consulting with professionals and understanding the process can help you determine if it’s the right path for your fresh start.


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