How Divorce Causes Bankruptcy

By Jennifer Williams

It's bad enough to have your marriage fall apart, taking with it life as you knew it, without having your finances fall apart, too. However, according to the Clear Bankruptcy website, 1.5 million people declared personal bankruptcy in 2010 -- and 8 percent of them cited divorce as their primary reason for filing. If you've never thought about bankruptcy as a consequence of divorce, you probably should think again.

Reduction in Income

When your spouse leaves the marriage, he takes his income with him. This leaves you with one income and often all the same bills you had before the split. If the court orders spousal support or child support, those amounts may offset some of the financial burden, but it is not uncommon for the loss of a spouse's income to push the other into declaring bankruptcy.

Bankruptcy of Your Former Spouse

Bankruptcy law prohibits your spouse from declaring bankruptcy to get out of paying you the spousal support or child support ordered in your divorce. However, if you and your spouse had any joint debt, such as credit cards or lines of credit, he can escape his share of that responsibility by declaring bankruptcy. If the debt is discharged in his bankruptcy, the entire debt may become yours. If you are unable to make the required payments by yourself, you may be forced into declaring bankruptcy to free yourself of what should have been a joint-debt burden.

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Legal Fees

You may be willing to sacrifice even precious personal assets in divorce just to end the emotional burden and save money in legal fees. But people are often willing to go to any lengths to keep, or regain, custody of their children. This includes racking up huge legal fees. The problem can be compounded if you have to travel to see your children while you fight for custody. Any available credit source often becomes fair game in the effort to keep fighting. In the end, bankruptcy may be your only way out of the debt load.

Support

If you were ordered to pay spousal and/or child support, the burden of making these court-ordered payments, coupled with the loss of your spouse's income, can force you into declaring bankruptcy to rid yourself of all other obligations. If you shirk your court-ordered payments, you risk contempt charges and even jail time for non-payment of child support, so not paying them isn't a viable option. However, if you discharge other debts, these payments can become much easier to make. Declaring bankruptcy can rid you of many of your other monthly payments.

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What Happens to Chapter 13 During a Divorce?
 

References

Related articles

Can I File for Bankruptcy if I Am Getting a Legal Separation?

Current law allows you to file an individual bankruptcy regardless of whether you're married or in the process of getting a legal separation. You can file a joint bankruptcy with your spouse either during marriage or during an ongoing separation case. While the law makes bankruptcy an option for you regardless of your marital status, filing while you are in the midst of a legal separation can complicate your case.

Does My Tax Refund Have to Go to the Bankruptcy Trustee?

Many families view their annual income tax refund as a personal bonus or a means to fund an annual vacation or make a large purchase. If you are in personal bankruptcy proceedings, however, your tax refund may be taken by the bankruptcy trustee to pay your creditors. In some circumstances, all or a portion of your tax refund can be protected through careful planning and use of bankruptcy exemptions.

What If I Am Unable to Pay for a Bankruptcy Lawyer?

If you're considering bankruptcy, not being able to afford to hire an attorney can add to the anxiety you already feel. However, the law allows individuals to file Chapter 7 and Chapter 13 bankruptcy petitions without using an attorney. Nonetheless, you may want to seek help in filing your petition, because bankruptcy laws are complex. Local organizations may offer free or low-cost assistance; a legal document service is another possible resource.

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