Getting a divorce can lead to one or both parties filing for bankruptcy. Often, a couple can manage their debts together. However, the sudden shift to a single-earning household can overwhelm a person’s finances.

Furthermore, the divorce proceeding may have placed a person further in debt. Hiring lawyers, paying court costs, and losing time from work can also add to a financial crisis. As a result, many people consider filing bankruptcy after divorce.

Filing Bankruptcy to Get Rid of Debts

While you are not required to have an attorney when filing for bankruptcy relief, it is strongly recommended. Bankruptcy laws are complex. Mistakes could result in losing property and/or exiting bankruptcy while still owing money to your creditors.

A bankruptcy lawyer assesses your situation. Then, if you need to file bankruptcy, the attorney discusses filing under Chapter 7 or Chapter 13.

A Chapter 7 bankruptcy or “liquidation” bankruptcy is intended for individuals who do not earn enough money to pay their living expenses and debts. You must pass an income test to qualify for a Chapter 7 discharge. A no-asset Chapter 7 case might be completed within four to six months after filing the bankruptcy petition.

When you file bankruptcy under Chapter 13, you submit a bankruptcy plan to repay your debts over three to five years. Then, you make monthly payments to a Chapter 13 trustee based on your confirmed plan. Your Chapter 13 payment depends on several factors, including your income, expenses, debts, and assets.

Does Filing Bankruptcy Get Rid of Alimony or Child Support Payments?

A bankruptcy discharge eliminates most types of unsecured debts. A debtor may get rid of debts such as:

  • Credit cards
  • Medical bills
  • Personal loans
  • Judgments
  • Old rent/lease payments
  • Some old income tax debts

However, filing bankruptcy after divorce cannot reduce or get rid of your support payments. You must continue to pay child support and/or spousal support according to the final divorce decree.

If you are behind in paying support payments, filing Chapter 13 could help. You may include past-due child support and spousal support payments in your Chapter 13 plan. 

You must immediately resume paying your regular support payments outside of your Chapter 13 plan. However, as long you remain current on your future child support and alimony payments, you should be able to avoid contempt proceedings for the past due support included in your Chapter 13 plan.

What Happens to Debts My Ex-Spouse Co-Signed?

Your ex-spouse receives notice of your bankruptcy filing if:

  • You owe spousal support or child support
  • You owe your ex-spouse a debt
  • Your ex-spouse is a co-debtor or guarantor on any of your debts

There could be other instances where your ex-spouse might receive notice of your bankruptcy filing.

Filing bankruptcy discharges your legal liability for repaying a debt you and your ex-spouse owe. The creditor cannot take any action to collect the debt during the bankruptcy because of the automatic stay. After the debt is discharged, bankruptcy law prohibits creditors from taking action to collect a discharged debt.

Therefore, the creditor may take legal action against your ex-spouse to collect the entire debt. Your bankruptcy filing does not eliminate the debt for your spouse. If your ex-spouse co-signed the debt, they are responsible for the debt if you default on the payments or you are discharged through bankruptcy. 

However, filing bankruptcy does not relieve you of the terms of a court order by the family court stating you must pay a debt. If you default on a debt you were ordered to pay in the divorce, your ex-spouse could take you back to family court. 

For example, you might surrender the marital home in Chapter 7 to get rid of your legal obligation to pay the mortgage. Then, when your Chapter 7 case is discharged, you are no longer legally liable for that debt. However, if the court ordered you to make the mortgage payments for your spouse, you could get into trouble if you refused to pay the mortgage payments.

How Does Filing Bankruptcy After Divorce Impact My Credit Score?

When most people file for bankruptcy relief, late and missed payments have already lowered their credit score. Filing bankruptcy temporarily lowers your credit score. The reduction depends on your credit score before filing bankruptcy and other factors.

However, many people see their credit score improve within a year or two after filing bankruptcy. Using credit wisely and making all future payments on time helps improve your credit rating.

If you consider filing bankruptcy, immediately discuss the matter with your divorce lawyer. Filing bankruptcy could impact your divorce proceeding. Your lawyer can help you locate a bankruptcy lawyer for a consultation. Working together, your counsel can help you choose the best way to handle your divorce and a bankruptcy filing. 

Contact the Bergen County Family and Divorce Law Firm of Arons & Solomon Divorce Lawyers for more help

Contact the experienced family attorneys at Arons & Solomon Divorce Lawyers today for legal assistance. Visit our law office in Bergen County or give us a call at (201) 487-1199 to schedule a free consultation with our team.

Bergen County Law Office
1 University Plaza Dr #400, Hackensack, NJ 07601, United States