Bankruptcy and Divorce
Harvard law professor and bankruptcy expert Elizabeth Warren has stated that the economic fallout from divorce is a leading cause of bankruptcy. The divorce process assigns debt, awards assets, and can significantly deplete marital assets. In many cases, one or both spouses are in a difficult financial position after the divorce. If the fall-out from your marital debt is pushing you and your spouse into divorce court, consider how a bankruptcy can alleviate the stress and simplify your finances. Filing bankruptcy before starting a divorce proceeding can be advantageous to both parties, and, in some cases, can even save a marriage.
A common problem after a divorce is the family court’s order concerning joint debt. The order will typically direct one party to pay or refinance a joint debt. Many are surprised to learn that this order does not relieve a parties’ obligation to pay the debt. The simple explanation is that the family court judge does not have the authority to rewrite a contract between you, your spouse, and a creditor who is not a party to your divorce. If your spouse does not pay the joint debt, your credit may be harmed.
On the other hand, by filing a bankruptcy prior to the divorce, most joint debts can be legally and finally terminated either by payment or discharge. Additionally, by resolving many of your outstanding debts, it is easier to negotiate the remaining obligations between you and your spouse.
Married couples also enjoy protections in bankruptcy that single debtors do not receive. For instance, married couples often receive increased legal exemptions that protect property from creditor attachment. These exemptions may be lessened or no longer available once the divorce is finalized. In other words, what you could protect in bankruptcy while married may not be protected after a divorce.
To say that the interplay between the state family laws and the federal bankruptcy laws is complex is a gross understatement. However, many of these complexities can be avoided by filing a bankruptcy ahead of a divorce. In some cases, the couple decides to stay together after the financial strain is removed by the bankruptcy.
If you and your spouse are considering divorce, consult with an experienced bankruptcy attorney and have your finances examined. If bankruptcy is a possibility, it is generally better to proceed with the bankruptcy case prior to the divorce.
Bankruptcy Versus Debt Consolidation Services
Like you, I constantly see ads for companies that claim they can negotiate down your balances with your creditors, get your interest rate lowered, and consolidate your bills into one low monthly payment. These ads run on TV, radio and the internet all times of the day and night. Some of these companies are legitimate and do truly want to help you get out of debt while others are fly-by-night operations who take your money and run. Whether they are legitimate or not, they all have one thing in common—they cannot stop your creditors from coming after you for payment. How do I know? Because I represented creditors in the past and creditors have certain rules for those people trying to collect the debts on their behalf. If the offer from your credit counseling agency does not meet the requirements a collection agency is given by the creditor, the collection agency can accept the proposed payments but does not give up their right to sue you on the entire remaining balance of the debt.
One of the many advantages of filing bankruptcy is that, when your case is filed, you are afforded the protection of the Federal Laws regarding bankruptcy. The best and most well known provision is the “automatic stay”. When your case is filed, your creditors are not allowed to contact you or try to collect the debt—they are automatically stopped from these acts. I like to think of it as they have their arms tied behind their backs. This gives you a time to breathe, regroup, and get your ducks in a row while your attorney, the trustee and the Judge look at your financial situation and find a solution with your help.
My Credit Card Company Is Offering A Credit Monitoring Service: Is This Service Worth It?
Several companies have sprung up that promise to help protect you against identity theft. How do they do this? By monitoring your credit. An alert is sent to you when changes to your credit occur such as when a new account is opened or a new address associated with you is logged with a credit reporting company. Some credit monitoring services are independent companies and some are operated by credit reporting agencies such as Trans Union and Experian.
While there are advantages to using these services, there are some problems with them such as:
1) If you receive a Notification from a monitoring company, your information may have already been used illegally by someone who has opened up a new credit account with your stolen identity.
2) The monitoring services cannot catch certain forms of identity theft that don’t access your credit report such as a person using a stolen identity to a) obtain a Payday advance loan, b) apply for a job; or c) apply for a driver’s license.
3) Most of what these services offer, you can do yourself. You can file fraud reports and place fraud alerts and credit freezes on your credit files with credit reporting companies.
Many people believe that credit monitoring activities will make them completely secure against identity theft. That simply isn’t true. However, credit monitoring can be an important piece of your protection package. Some other things you can do include:
- Leave important documents in a safe place at home.
- Only carry the credit cards or other cards you plan on using that day (do not carry your Social Security Card).
- Properly destroy old credit cards, checks and unneeded receipts
- Shop only on secure Web site with companies you trust.
- Check your bank and credit card statements monthly for any suspicious activity.
- Personally check your credit report at least once a year.
Since the cost of a monitoring service usually runs $10 to $15 a month, it may be worth it for the peace of mind in knowing that you are purchasing a little added insurance to avoid being the next victim of identity theft.