Bankruptcy and Divorce

Bankruptcy and divorce are often closely related. Many of our clients come through our doors because they’re struggling with the loss of income following a divorce. Sadly, some of our clients go through the tough process of divorce after they decide to file for bankruptcy together. This post will explore both of these situations in more detail, and the effect they have on a bankruptcy filing.

The financial ripple effects of getting divorced is a significant contributing factor in whether an individual chooses to file for bankruptcy. After all, two people dividing their assets takes its toll on both of their finances. For example, if only one spouse was employed over the course of a marriage and is subsequently ordered in a divorce decree to pay alimony and child support, the cost of supporting two households could become hugely overwhelming, and could then dissolve into endless cycles of debt. If, for instance, both spouses worked and contributed equally to the household expenses, then the loss of 50% of the household income could result in extreme financial difficulty for both individuals. It is a common occurrence after a divorce and often bankruptcy offers a fresh start following that financially difficult and emotional separation. In 2010 alone, 91% of people who filed bankruptcy under a Chapter 7 cited job loss, medical expenses and divorce as the major contributing factor of their choice to file.

It is also common that we have potential clients who initially decide to file a joint petition as husband and wife, but then decide to get divorced during the course of preparing their bankruptcy petition. When this happens, the couple typically has two options: one, they can part ways and pursue filing separate bankruptcies as individuals, or two, they can stay married and continue to file bankruptcy jointly. The second option is widely viewed as being more cost-effective for couples. After all, you’re only paying for one set of attorney’s fees, court fees and may be able to discharge your joint debts in a bankruptcy. In and of itself, filing bankruptcy jointly, even though you intend to get divorced later down the line, is often simpler and more financially prudent. But make no mistake, if you decide to get divorced in the middle of a joint bankruptcy filing with your spouse, it can throw a monkey wrench  into the process.

In this situation, there may be a conflict of interest for the attorney to continue representing both husband and wife. Unfortunately, it is not uncommon for the communication between the filing couple to disintegrate, or become estranged during such a time. This makes it incredibly difficult for the attorney to adequately represent both parties. Though the couple legally remain married, they may have moved into separate residences and separated their assets and finances. As well as effectively creating additional expenses and assets to add to the bankruptcy petition, such couples are often unable, or unwilling, to reconcile their schedules and provide important information needed for their petition. Consequently, an attorney may feel that representing an uncooperative couple ultimately serves in neither party’s best interest, and may be required to withdraw from representation. If you and your spouse are considering filing for divorce, it is important to have a frank and honest conversation about how you will both be able to move forward with a pending bankruptcy, and decide what is best for your family.

Divorce and bankruptcy are difficult, emotional and overwhelming on their own. For most people, going through both at the same time is nothing short of a nightmare. You may feel like you’ve hit rock bottom. It’s important to remember the overall end goal – a fresh start. It is also important to speak to an experienced attorney who will be able to lay out your options more clearly, and help you decide how to move forward. Call our office now at 602-265-3000 to schedule a meeting with one of our attorneys.