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Bankruptcy Lanigan & Lanigan, P.L.
831 W. Morse Blvd., Winter Park, Florida 32789
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Florida Bankruptcy, Divorce or Both; Choose Carefully

 Bankruptcy Before or After Divorce?

Difficult choices face couples experiencing personal relationship problems that begin with financial issues. Married couples struggling with financial stress within a marriage because of large amounts of debt often consider filing for divorce.

Financial issues are a primary reason for marital breakdown. The strain is more pronounced in marriages where one spouse earns significantly more than the other. Or issues involving spending where couples argue over what one spouse feels are necessary purchases vs. the other spouse feels are superfluous purchases. Financial disagreements can begin the breakdown of communication and the beginning of divorce.

But when couples have massive amounts of debt from credit cards, mortgages, cars, loans, bills from an unexpected illness, the thought of divorce usually begins with bankruptcydiscussions.

File Bankruptcy Then File Divorce?

it’s best to talk to an experienced bankruptcy attorney and be completely honest about the domestic situation before filing for bankruptcy or filing for divorce.

Florida bankruptcy attorneys Eric Lanigan and Roddy Lanigan find that married couples don’t know what to do first if they are going to file bankruptcy and file for divorce.

On occasion, when debt is out of control and causes all the problems, a married couple reaches the point of divorce. However, it is highly advised that a couple cooperate to achieve relief from debt to find out if without the debt the marriage can work.

Many clients who work out debt issues prior to filing for divorce resolve stressful confrontations and through counseling and careful rebuilding that can save the relationship

The Lanigans suggest that clients talk with a lawyer before filing for bankruptcy or a divorce or both.

If the couple is planning to stay together, the couple should together speak with a bankruptcy attorney.

However if a couple is decided to file bankruptcy and to file for divorce, each person should hire an attorney to work in their best interests.

If you and your spouse have a great of shared debt, filing for bankruptcy before you divorce can be beneficial because it will allow you minimize your debts, making it easier to divide them once you start the divorce proceedings.

Filing jointly for one bankruptcy is also much less expensive than filing separately for two. Also, having a bankruptcy on file will put an automatic stay on your account, keeping your creditors off your back since they will not be able to collect on most of your debts.

If either spouse can’t stand being around the other person, having to wait for the divorce may be quite difficult.

Basically, you’ll have to be able to cooperate with your spouse in order to successfully file for the bankruptcy. A disadvantage of waiting to get divorced until after you have filed for bankruptcy is the amount of time it will take. It takes a longer period of time to actually finalize a divorce.

Chapter 13 Bankruptcy May Not Be Possible With a Divorce

You can save a bankruptcy filing fee if you file for bankruptcy before the divorce. But, you can’t expect to maintain a Chapter 13 bankruptcy if you are divorced. While in a Chapter 13 bankruptcy individuals get to keep property and creditors receive less money than is owed. The debtors offer creditors a payback plan that must be perfectly maintained with no late or missed payments for between three and five years. This plan details all transactions and the length of time that payments that will occur.

Repayment of debt in a Chapter 13 bankruptcy begins 30 to 45 days later. Creditors cannot try to collect an individual’s debt except in bankruptcy court. The process takes from between three to six months to complete. So if you are certain you want a divorce, a Chapter 13 Bankruptcy is highly improbable.

Many attorneys upon learning that a divorce is imminent or possible will not represent both people, because there is a potential conflict of interest.

Some formerly married individuals may choose to file for bankruptcy after the divorce with the intention of getting rid of some or all of the debts they were required to pay as part of the divorce order.

Specific types of debts, however, are not dischargeable in either a Chapter 7 or Chapter 13 filing. This includes child support and alimony. These types of obligation MUST be paid. There is no way out of them.

Interestingly, married couples can file bankruptcy together, even if they have separate households.  But once a divorce is final, a couple can no longer file bankruptcy together.  If there is an impending divorce it may benefit the couple to file bankruptcy before the divorce is final.  The Lanigans suggest investigating the possibility of filing a Chapter 7 bankruptcy together.

If there is a impending or pending divorce, a joint Chapter 13 bankruptcy will not be allowed.  Since the Chapter 13 bankruptcy is a long-term repayment plan, it would have to be determined who is to make the monthly Chapter 13 payment after the divorce is initiated and the monies are no longer comingled. 

Many times after divorce parties want debts handled differently and there could be a conflict of interest with an attorney representing both parties.

What Comes First: Bankruptcy or Divorce?

Every married couple’s situation is different. Every single bankruptcy is different. No one has the same property, assets, income or debt. So the Lanigans clearly explain some that in some situations it makes sense to file for bankruptcy after a divorce. But in other situations it’s best to get rid of the debt together, before you file for divorce.

In divorce proceedings, spouses must decide on asset division and debt division, who will get which bills, and who will keep the home (and possibly the upside-down mortgage). Neither spouse will be stuck with unpaid bills and one won’t have to pay an accountant help to understand the complex financial assets in the property settlement process.

Whatever the reasons may be, no matter what your eventual choice—bankruptcy AND divorce, or just bankruptcy–ask an attorney to review your financial situation and personal choices or thoughts about divorce before you move forward with a divorce and or personal bankruptcy.

Bankruptcy and Divorce Costs

Bankruptcy filing fees are the same for joint and individual filings.  However, filing a joint bankruptcy with your spouse prior to divorce can save you a lot on court fees. 

If you decide to hire a bankruptcy attorney, your attorney fees will likely be much lower for a joint bankruptcy than if each of you filed separately. However, you should let your bankruptcy attorney know about an upcoming divorce as there may be a conflict of interest for him or her to represent you both. 

Filing for bankruptcy before a divorce can also simplify the issues regarding debt and property division and lower your divorce costs as a result.

Chapter 7 vs. Chapter 13 Bankruptcy With a Pending Divorce

A Chapter 7 bankruptcy is a liquidation bankruptcy designed to get rid of unsecured debts such as credit card debt and medical bills.  In a Chapter 7 bankruptcy you usually receive a discharge after only a few months.  A Chapter 7 bankruptcy can be completed quickly before a divorce.

In contrast, a Chapter 13 bankruptcy lasts three to five years because you have to pay back some or all of your debts through a repayment plan.  If you were considering filing a Chapter 13 bankruptcy, it may be a better idea to file individually after the divorce because it takes a long time to complete.

A Chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in Chapter 13 bankruptcy.  Instead, a bankruptcy trustee gathers and sells the debtor’s non-exempt assets and uses the proceeds of such assets to pay holders of claims also known as creditors in accordance with the provisions of the Bankruptcy Code.

Florida and U.S. bankruptcy code allow a debtor to keep certain exempt property; but a trustee will liquidate the debtor’s remaining assets. Part of a debtor’s property may be subject to liens and mortgages that pledge the property to other creditors.

Therefore, potential debtors should realize the filing of a petition under Chapter 7 may bankruptcy may result in the loss of property if not handled by a very experienced bankruptcy attorney.

The chapter of the Bankruptcy Code providing for reorganization usually involves a corporation or partnership.

A Chapter 11 bankruptcy debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.

A Chapter 13 bankruptcy is also enables individuals with regular income to develop a plan to repay all or part of their debts. Under a Chapter 13 bankruptcy, debtors propose a repayment plan to make installments to creditors over three to five years.

If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period for cause.

According to bankruptcy code: (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. (11 U.S.C. §1322(d).) During this time the law forbids creditors from starting or continuing collection efforts.

Filing for Bankruptcy Before Divorce Can Be Smooth

In a majority of cases, a married couple should get out of debt before filing for divorce. This almost always makes sense and here is why:

When you file a joint bankruptcy, you pay one court filing fee instead of two individual filing fees

When you file a joint bankruptcy petition you will pay one attorney fee. Savings can be significant

All debts–individual and joint–will be discharged in the bankruptcy. There will be no lingering joint debt that a non-filing spouse will be responsible for.

A larger household size could help a couple pass the means test and enable you to qualify for Chapter 7 Bankruptcy

The entire divorce settlement process becomes cleaner and easier without debt obligations to distribute.

One of the leading causes of marital conflict involves money, or lack thereof, or high amounts of debt.

If you and your spouse filed a joint bankruptcy and you are now considering divorce, your respective financial positions may be at odds with each other: One person may want the house, one may not. Both may want a vehicle.  Who pays for what?

If you cannot agree to get along in marriage, will you be able to agree to do the things necessary to complete your case after you divorce?  This situation places the attorney squarely in a potential conflict of interest between both spouses.  An attorney cannot serve two people. If a divorce is imminent, each spouse must have an attorney.

Whatever your situation if you are considering filing for divorce and filing for bankruptcy call the Lanigans for an appointment. Your choices, your decisions are respected. The Lanigans provide options and provide scenarios for you to select from for the best financial, economic and personal outcome. Call 407-740-7379 to make an appointment to meet with the Lanigans in their Winter Park, Florida, or Orlando, Florida, law offices.

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