Whether temporary or leading to divorce, separation can be an emotionally traumatic experience. Indeed, even in so-called “good breakups” (which some people consider a contradiction in terms) can cause wounds that can only be healed with time, support, and possibly the assistance of a qualified mental health professional like a psychologist, psychiatrist, therapist or counselor.
However, it is less well-known that separation can — and often does — impose a major financial burden as well. Unfortunately, creditors frankly do not care and have zero compassion when it comes to this very common scenario. They demand payment, and will not pause their aggressive collection efforts — including filing lawsuits — because a debtor is going through a very difficult time in their relationship or family.
If you are facing this difficult situation, then filing for chapter 7 bankruptcy might be in your best financial interest. Here are some basic facts that will help you decide if contacting a bankruptcy attorney for a closer look at your options is a worthwhile next step:
- Contrary to what many people believe, individuals can indeed file for bankruptcy while legally separated. They do not need to file jointly (although in some cases it may be beneficial to do so).
- Usually, any new debts that you incur after legally separating will be your responsibility (and the same applies to your spouse).
- If you and your spouse have joint credit cards or other joint debts, then these will continue accumulating and creditors may seek to enforce the debt against the non-filing spouse. In other words: if your spouse files for bankruptcy and you do not, then creditors may come after you — and not your spouse — to pay up, even though the debt was initially incurred by both of you.
- In the same light as the point immediately above: depending on the homestead exemption laws in your state, if your spouse files for bankruptcy and you do not, then creditors may seek to foreclose on your home in order to resolve outstanding debts that were incurred by you and your spouse.
- If you file for bankruptcy and ultimately discharge your debts in federal court, the family court in your state may use your new (and larger) disposable income amount to reduce your alimony award if you are due to receive a monthly amount, or increase your obligation if you are due to pay a monthly amount.
Should You File While Separated or Wait for Divorce?
Whether you should file for chapter 7 bankruptcy while separated, or if you should wait until you are officially divorced, is an extremely important issue to resolve — one that will have a lasting impact on your financial future for decades to come.
The above facts are NOT intended to point in you in one direction or the other. Rather, they are meant to give you a basic understanding of the landscape. The only source that can provide you with counsel for your specific situation is an experienced bankruptcy attorney. Be advised that your family lawyer cannot (and should not) provide you with this type of financial advice, since it is not their area of specialization. Fortunately, this warning is usually a non-issue, since qualified and credible family lawyers will always refer you to a bankruptcy attorney if they believe that it is in your best interest to consult with one.
To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing bankruptcy cases, and have helped numerous individuals going through the legal separation.