Can Divorce Cause Bankruptcy?

Over the next few weeks, I will be blogging about the causes of bankruptcy for individuals and couples, and how these life problems can be helped by the filing.

There is much fear and guilt associated with chapter 7 or any form of bankruptcy, but it in understanding the causes, which are often beyond someone’s control, that may help people view bankruptcy as the legal tool that it is, rather than feeling bad personally for doing something that needs to be done.

Divorce is a life changing and traumatic for everyone involved. One of the biggest causes of divorce is money problems and arguing and fear of overwhelming debt.

Sometimes, couples come to me considering divorce, but when we see that their main problem is debt, a case can be filed, the pressure is reduced, and the divorce is avoided.

Sometimes the divorce is inevitable, but the couple, IF THEY STILL HAVE GOOD COMMUNICATION, can file bankruptcy together before the divorce, so that the divorce is reduced to important issues involving kids, and since the debts are cancelled, the couple is no longer fighting about who pays which debts.

It should be noted here that debts between the parties such as child support, alimony, maintenance, and property settlements are not cancelled in bankruptcy, so the bankruptcy solves the debt problems related to third parties, and not between each other.

Why divorce causes bankruptcies is simple math. For example, a family of four with both spouses working has one set of expenses (rent, utilities, etc.) that usually takes all that they earn. When this is split into two households, there are double the expenses with the same income. Something has to give because in this scenario the couple cannot support two households and take care of the kids AND support debt they cannot afford. Thus, the bankruptcy eliminates one huge set of expenses so the family cannot better use their money to provide for the direct family needs.

Finally, often after one party files bankruptcy after divorce, the other spouse must file soon thereafter. This is because if the debts are joint debts, the bankruptcy discharge only protects the first spouse, and the creditors then go after the second spouse causing the need for the second bankruptcy filing to protect everyone.

In closing, if debts are causing a strain on your marriage, consult with a good bankruptcy lawyer to see if filing bankruptcy would be of help.

Peter’s Blog