Bankruptcy
Summary in Divorce

Grim as it may be to contemplate, many divorcing couples face not only the pain and suffering of marital collapse but also financial ruination that ends in bankruptcy, a legal proceeding in which a person who is financially insolvent requests the federal bankruptcy court to determine his or her debts and use his or her assets to pay those debts.

The premise of bankruptcy is the very American idea of a fresh start in a new place, but in practice, that fresh start is the beginning of a difficult march across rough terrain until the bankrupt reestablishes himself or herself as creditworthy.

Bankruptcy is a course of last resort because it can take years for a bankrupt to restore his or her credit rating, but many people find relief from bad decisions and just plain bad luck in a bankruptcy.

Crushing debt caused by high living often causes stresses that break a marriage, so many divorcing couples must face the possibility of bankruptcy at the same time their marriage collapses. Sometimes a couple file for bankruptcy as a preliminary to divorce and thereby clear the way for a fresh start financially as single people. Often a divorced person finds that the financial struggle after a marriage overwhelms him or her. In other words, bankruptcy is a factor to consider both before and after any divorce. Any of these steps requires good legal advice.

Depending on the type of filing, in bankruptcy debts are completely removed through liquidation, as in the case of Chapter 7, or partially and/or temporarily through rehabilitation and reorganization, as in the case of Chapters 11 and 13. Chapter 7, the so-called "fresh start," frees debtors of many unsecured liabilities like credit card debt and medical bills. Chapter 13, under which individuals or couples reorganize and repay over a three-to-five-year period, can save a house and automobiles from creditors, but it costs more to file and takes longer to work out. In both cases, however, once the bankruptcy petition is filed, the court has jurisdiction over all the debtorís debts, including collection suits, divorce actions and postjudgment motions to collect under the terms and conditions of a divorce decree.

Alimony, child support, student loans and attorney fees cannot be discharged by bankruptcy, but sometimes a property settlement can be. After a divorce, the financially dependent spouse who waives support in exchange for his or her partnerís agreement to pay outstanding debts, such as mortgages or credit cards, may be at risk because a good faith bankruptcy after a divorce can derange the terms of the agreement.

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