Properties and Finances

They say it never rains but it pours. That is certainly the case if you're involved in a divorce when along comes the issue of bankruptcy. Now you've got plenty to think about. The question though is does bankruptcy cause divorce? Some might argue it's the other way around. Whatever the question or the answer, there are many things you need to know about bankruptcy and divorce.

In the USA, bankruptcy is believed to be caused by a number of things including serious illness, lack of health insurance, financial troubles and divorce. There you have it. But the question remains; how do you handle bankruptcy either as the person filing for same or as the partner of the person seeking bankruptcy?

It can be a case of which came first - unemployment or divorce? A person can lose their job, get into financial difficulty and find that triggers their divorce. Or if a person is having marriage problems, their attitude at work suffers and they get fired.

Arguing the toss doesn't really help. If someone is facing divorce and/or bankruptcy what they want and need is help and good advice.

In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) came into force and this meant that it is now more difficult to discharge your debts when divorce and bankruptcy come together.

This subject is the cause of many an argument between those who see some men neglecting to support their children after divorce and those who feel some men are reduced to poverty because of debts they have to pay after their divorce. In short, the matter is tricky and no simple answer is given here.

Specialists Only

It's true that there are lawyers and there are lawyers. Just because someone is qualified doesn't necessarily make them good. That's why it can be a good idea to hire a divorce lawyer who specializes in family law. Likewise with bankruptcy. It's a detailed business and when combined with divorce becomes even more complicated. Consider hiring a lawyer who specializes in bankruptcy.

Important Terms

One word which occurs throughout bankruptcy is the word discharge. A person in debt who applies for and is granted bankruptcy will have two types of debt - dischargeable and non-dischargeable.

Most debts are able to be discharged, i.e. removed. But in a divorce settlement, certain debts are never dischargeable i.e. they must be paid. If a father for example, is ordered to pay support to his ex or to a child or children, being declared bankrupt will never release the father from paying those costs. He will still owe the support payments no matter what.

So beware that bankruptcy has its own unique rules when combined with divorce. Of course what the law demands and what actually happens in real life are not necessarily the same thing. The New York Times published an article which included the following.

"As of 2003, fathers allegedly owed $96 billion in child-support. However, 70 percent is owed by men who earn less than $10,000 a year or have no wage earnings at all, so we have a $3 billion government bureaucracy working to get blood out of a turnip."

Juggling Routine

Let's say you are the spouse who is not filing for bankruptcy. In many cases it's the wife who has little money of her own and is likely to be dependent on her ex to pay alimony. You, the woman, need to juggle your needs to gain the maximum benefit. (Mind you, what research there is points to, in recent times, more women filing for bankruptcy. Men and joint applications are rising but women's applications outstrip both the other groups.)

In this example we come to the situation where debts are put into categories. Top priority is child support. As mentioned above it is untouchable. If the court rules that $X amount must be paid in child support, bankruptcy has no effect on this ruling.

But property settlement is considered a different type of debt. The more you can define your needs as child support as opposed to property settlement, the better for you. A good lawyer and certainly one who specializes in bankruptcy will advise you on how to juggle your needs.

Another juggling routine involves not one partner applying for bankruptcy but both. The obvious benefits are that application costs are halved and the divorce settlement can be less complicated. Again, take legal advice before you take any action.

If you are considering divorce and want advice regarding bankruptcy, there are several questions you could ask your lawyer.

1. Should my spouse and I file for bankruptcy together and use the one lawyer?
2. Is it better to file for bankruptcy before or after my divorce comes through?
3. If I file for bankruptcy, how will this impact on my ability to pay any debts after I am divorced?
4. I want to file for bankruptcy but my spouse doesn't. What should I do?
5. What's a 'hold harmless' clause and why should I have it placed in my divorce settlement?
6. Why should I have a 'property lien' on certain real estate in my divorce negotiation and how will this help me if bankruptcy becomes an option?

Legal Niceties

The United States has a two-tier series of laws - federal and state - when it comes to bankruptcy. The Bankruptcy Code is a federal law and the state in which the bankruptcy petition is filed will have jurisdiction as well. And not only is there a two-tier level of law, there are differences within the states e.g. some states are more generous than others when it comes to the value of real estate a person may retain when in bankruptcy.

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has many sections and whilst it might offer more bankruptcy protection, it also requires the applicant to have lived in a particular state for more than three years. Your lawyer will explain the differences between states and certainly what your state law allows.

It's a moot point about bankruptcy causing divorce. Whether one is the direct or sole cause of the other hardly matters when there are people involved. They want stability in their personal and financial lives. This can only come with sound advice from a professional.

If ever there was a time when sound advice from a qualified lawyer is needed, it's when divorce and bankruptcy are involved separately or together.

Here are additional resources you might be interested in:

More information in dealing with properties and finances, click here.

Read divorce and tax issues, click here.

Are you on the verge of having a divorce? Read this to Save Your Marriage.

There's an excellent ebook about deciding whether to Get a Divorce or Stay In the Relationship. Every couple should read this before making the decision.