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Be aware of the limits of post-divorce bankruptcy filings

Divorce has a significant financial impact on most families. Not only do families have to split the assets they possess in half, potentially diminishing retirement assets and equity in the family home, but divorce proceedings themselves can also prove to be expensive.

In the wake of a protracted and expensive divorce, people may find themselves considering extreme measures to correct their financial circumstances. Working two jobs, pushing back retirement and downgrading one's lifestyle are common approaches. Bankruptcy can start to look like a very appealing option.

Some individuals who have recently divorced can benefit from restructuring their financial situation through bankruptcy proceedings. However, before you initiate bankruptcy, you should educate yourself about the limits of bankruptcy on your financial obligations after divorce.

Bankruptcy only helps address certain debts

Contrary to popular belief, bankruptcy proceedings do not automatically protect you from any and all debts. There are limits to which debts the courts will discharge. The most significant impact offered is the discharge of non-secured debts, like medical debts, unpaid bills gone to collections or credit card debt.

In the case of certain debts, like the mortgage on your home, you will probably need to reaffirm the debt or renegotiate the contract to maintain the collateral property during bankruptcy. In other words, bankruptcy can negate your obligation to pay secured debt; you can also lose the item secured by the debt.

Similarly, bankruptcy will not discharge any priority debts you owe. Priority debts are debts of significant legal or moral importance. Those debts often include outstanding and ongoing alimony and child support payments.

Filing bankruptcy does not end your obligation to your ex or your kids

Bankruptcy can help those who are struggling with the financial realities of life after divorce. Those paying child support or spousal support can benefit from bankruptcy as well. Getting rid of unsecured medical debts and credit card debts can free up income so that you can meet your support obligations. It won't get rid of those obligations, however.

If you owe significant back support, bankruptcy proceedings will not eliminate that debt. However, filing Chapter 13 bankruptcy could allow you the opportunity to renegotiate the payment plan for that debt.

Support debts specifically related to asset division can sometimes be eligible for discharge in bankruptcy cases. However, these debts are complex. Discussing the issues with an attorney is likely in your best interests.

An attorney can help you better understand the impact of bankruptcy

Regardless of whether you are considering Chapter 7 liquidation bankruptcy or a Chapter 13 restructuring plan, the implications of bankruptcy on your personal life and finances are significant. Talking with an attorney who understands bankruptcy law and family law can help you better understand the benefits and limitations of bankruptcy for your specific situation.

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Whether you have a family law issue, an estate planning question or are considering bankruptcy, I can help you find a sustainable solution that provides relief and hope. Schedule your consultation at my Nashua, New Hampshire office today by calling 603-635-4149 or by sending us an email.

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