No one goes into marriage with the expectation that they may one day face divorce, but this is the unfortunate reality for many couples in Florida.
One of the most common reasons to dissolve a marriage is financial trouble, including bankruptcy. Sometimes, people find themselves in the situation of facing both divorce and bankruptcy at the same time, and in that case, should seek an attorney who can handle all their concerns.
It's no surprise that as couples become increasingly troubled by their financial state, they may look into all their options for a relief from pressures. But how would bankruptcy affect a divorced couple?
What is Bankruptcy?
Bankruptcy is essentially a method to recuperate under unmanageable debt, and is a process involving several steps in court. Florida’s two types of individual bankruptcy options, Chapter 7 and Chapter 13, differ in whether you may be dictated to liquidate assets to help offset debts owed, or whether a satisfactory repayment settlement can be reached with your creditors.
The complications which can arise depend on your individual situation, and your attorney can advise which option best meets your financial circumstances. In either type of bankruptcy filing, future credit worthiness and the ability to borrow money will be severely affected, and you should not hesitate to ask your attorney questions to be fully prepared.
Why Does Bankruptcy Matter in A Divorce?
Florida Statute 61.075 explains that any liabilities; including debts, liens, and mortgages incurred during the marriage can be considered a marital liability and subject to division between the husband and wife. Since the court begins from a position of attempting to divide marital assets and liabilities equally, the portion of the debt that one person ends up being responsible for may be more than they can bear, and may contribute to that person's additional financial problems down the road.
For a couple who is facing both bankruptcy and divorce, there are several decisions to make. They must decide which comes first, bankruptcy or divorce, and evaluate how their current and future individual financial situations will be impacted. For a couple whose divorce is final, if one person needs to declare bankruptcy afterward, the resulting complications can potentially affect both individuals.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) offers protections from unfair debt collection practices, but also makes both husband and wife responsible for debts incurred during a marriage. This can apply to debt resulting from the divorce process itself, or debts resulting from financial agreements made in the divorce settlement.
Forbes discusses how BAPCPA prioritizes "domestic support obligations" over other non-secured debt in a bankruptcy. In other words, a person cannot drop support-related debts if they are part of a divorce agreement, even if those debts contributed to the person’s decision to declare bankruptcy. This kind of scenario can result in one individual’s continued financial struggles with debt management after the divorce, which might continue to affect their ex-spouse’s financial situation unintentionally. These kinds of unforeseen complications demonstrate how crucial it is to consult an attorney during these processes.