Consult a Denver Bankruptcy Lawyer to Avoid Unnecessary Complications
Divorce and bankruptcy can sometimes go hand in hand. Financial problems can cause strain in a marriage, and ultimately lead to divorce in some relationships. And divorce itself can cause financial problems, leading to one or both of you having to file for bankruptcy.
If you and your spouse are currently looking for a divorce attorney in Denver, and are considering bankruptcy filing as well, there are some important considerations to first keep in mind. In addition to reading this article, consult an experienced debt settlement attorney like Wink & Wink to get the right solution for you.
First, let’s look at the two types of personal bankruptcy, as which you choose can make a difference when you’re also considering filing for divorce.
Chapter 7 and Chapter 13 Bankruptcy
- Chapter 7 bankruptcy erases most of your unsecured debts. This includes things like credit card debt, medical bill debt and home leases/mortgages. You then no longer have to pay back the debt you owed.
- Chapter 13 bankruptcy creates a three- to five-year repayment plan that covers some of your unsecured debts, and the rest is discharged.
What Are Examples of Debts That Can’t Be Discharged?
While bankruptcy can help you erase many types of debt, some debt cannot be erased – and many of these are relevant to families and divorce.
The following debts cannot be discharged in either Chapter 7 or Chapter 13 bankruptcy:
- Child support
- Child custody or child support case attorney fees
- Student loans
Is It Okay to File for Divorce and Bankruptcy at the Same Time?
While you’re allowed to, it can sometimes make things more complicated.
Often, people choose to file for bankruptcy before they file for divorce. If you and your spouse are on at least amicable terms, filing for bankruptcy first can be beneficial. You can share attorney and filing fees, for one. You can also claim bankruptcy exemptions for property you own together. This may mean double the exemption, depending on your state’s laws.
Once you file for bankruptcy, what’s known as an “automatic stay” is put into effect. This stops creditors – people or organizations to whom you owe money – from contacting you or trying to put a freeze on your property and assets. They’re paused from being able to collect on the debts you owe them. This automatic stay is necessary because it takes time for the bankruptcy court to determine what debts you owe and how your current assets could be used to compensate for at least some of that.
If your bankruptcy process is still being carried out, filing for divorce further complicates that, as divorce also divides up your assets. This causes problems since the automatic stay makes it almost impossible for the family court to access and then split up your assets.
Be mindful of income thresholds to declaring bankruptcy. If you make above a specified amount you may not be eligible to declare bankruptcy, or you may only be allowed to file for Chapter 13 bankruptcy. But, as with anything, there are always exceptions, so consult Wink & Wink, a Denver-based bankruptcy law firm with over a decade of experience.
As of February 2021, the annual income thresholds in Colorado are:
- One person: $66,942
- Two people: $87,103
So, let’s say both you and your spouse make $50,000 a year each. If either of you filed for bankruptcy individually (without the other partner), you would be below the threshold. However, if you filed jointly, you would now be above the limit (as your combined annual income is $100,000) and may only be eligible for Chapter 13 bankruptcy, not Chapter 7. So it’s important to keep this distinction in mind.
Chapter 7 vs. Chapter 13 Bankruptcy
Chapter 7 bankruptcy usually takes about three to six months to eliminate debts that can be discharged. You could then file for divorce after the bankruptcy process has completed without some of the additional challenges that occur when you file for bankruptcy and divorce around the same time.
As Chapter 13 involves a three- to five-year repayment plan, if you declare divorce during that period, you’ll need to make some changes to that repayment plan. Options include:
- Cancelling that repayment plan entirely by paying off all the debts you owe.
- Restructuring the repayment plan by dividing it into two separate cases, one for you and one for your spouse. This naturally brings some challenges with it, which may make the divorce process take longer, so be sure to consult a divorce attorney and/or bankruptcy attorney for guidance.
Consult a Trusted Denver Bankruptcy Attorney
Bankruptcy and divorce are an emotional, stressful process. Wink & Wink, a Denver bankruptcy law firm, can provide bankruptcy guidance to help you avoid needless mistakes or things becoming even more complicated. Call Wink & Wink at 303-410-1720, or contact us online for a free consultation to determine your best options.