Sunday, September 30, 2012

Filing for Bankruptcy Before, During or After a Divorce

At certain times in life, one bad thing leads to another. This seems to be the case when it comes to bankruptcy and divorce, with the two sometimes being inextricably linked. Whether it is financial problems that lead to marital discord, or it is the divorce itself that brings about unsustainable financial obligations, knowing what to do in this difficult situation is essential in keeping your current quality of life.

The sad reality is that both have the very real possibility of influencing each other and can present major problems if not approached in the proper manner. Understanding your options before, during and after a divorce can keep you from being dragged into a financial-legal crisis.

Prior to Divorce

In an ideal scenario, the bankruptcy filing will be handled prior to the divorce proceeding. This will enable the two parties to mutually decide how to divide their assets in the most equitable manner possible, while also deciding the debt burden that each is obligated to assume.

As long as the parties are still married, they are able to file a joint bankruptcy petition, even if they are separated at the time. This process will usually only work when the parties are able to cooperate with each other and with their attorney. The most beneficial aspect of filing before is that the divorce can proceed with the issue of marital debt having been fixed. This should allow for a more amicable and fair settlement.

During Divorce

Dealing with the bankruptcy process in the midst of a divorce has the potential to make a complicated process even more difficult, but may in fact be necessary, depending on the situation.

Whether one or both spouses in a divorce should file for bankruptcy depends mostly on the amount of debt in each party's name, along with whose name the marriage assets are titled. These assets include houses, cars and financial accounts. Discharging the debt of one spouse, while saddling the other spouse with high levels of money owed, does not fix the overarching issue of who must pay for the remaining marital debts.

Once the spouse files for bankruptcy, the bankruptcy court will issue an automatic stay. This disables creditors from continuing to try to collect any outstanding debts that have yet to be paid. The automatic stay also prevents the divorce court from moving forward.

Similarly, the divorce court will be unable to divide property between the spouses until the bankruptcy court has made a determination of which assets are exempt from the bankruptcy. It must be noted that exempt property cannot be sold by the trustee to pay off debts.

Post Divorce

Some formerly married individuals may choose to file for bankruptcy after the divorce with the intention of getting rid of some or all of the debts they were required to pay as part of the divorce order. Specific types of debts, however, are not dischargeable in either a Chapter 7 or Chapter 13 filing. This generally has to do with support obligations, which include child support and alimony. These types of obligation MUST be paid.

Property settlements may be dischargeable in certain scenarios. Non-support obligations, like the money owed in a property settlement, are not dischargeable in a Chapter 7 bankruptcy, but may be in a Chapter 13 filing. This is unless the court finds that the money owed is in fact a support obligation.

For those worried that their spouse will file for bankruptcy after the divorce is finalized, there are some protective options that they have in regard to this. These include indemnity agreements, property lien's, support obligations and title changes on joint debts.

With an understanding of what can be done before, during and after a divorce when it comes to filing bankruptcy, you will be certain to approach this complicated situation in the most efficient manner possible.

Thursday, September 13, 2012

Rebuilding After You've Filed for Bankruptcy

There are few experiences as traumatic and stressful as declaring bankruptcy. However, bankruptcy is not the end of your financial life; it can also be a new beginning. Though a bankruptcy can result in a bad mark on your credit report, it can also provide the opportunity to rebuild your credit and financial health. Using these steps, you can start anew after bankruptcy and secure for yourself a healthy financial future.

Evaluate How You Got into Bankruptcy 
There are many reasons that can cause an individual to declare bankruptcy. Some financial issues might be out of your control, such as medical bills, law suits, layoffs, or divorce. But there other factors that can lead you to bankruptcy or make you more susceptible to bankruptcy that can be managed. You might have to ask yourself some tough questions as you evaluate your path to bankruptcy. Maybe credit card companies seduced you with the promise of easy credit, but then hit you with high interest rates. With the enticement of credit cards and their "easy monthly payments" you can very quickly find yourself in big financial trouble.

Another cause of bankruptcy can be a lack of emergency savings. Many folks fail to create a financial plan that includes setting aside a percentage of their income that can be accessed in the event of a layoff or emergency. Some people get in trouble by buying more house than they can afford, and when a financial crisis occurs, find themselves burdened with a mortgage payment larger than their income. Whatever the cause, take some time to evaluate what happened, and see if there are any steps you can take to avoid problems of the past.

Make a Spending Plan 
A spending plan is simply deciding what you are going to do with your money before spending it. By writing down your income and expenses, you can get an idea of where your money is going. That way, you can decide ahead of time whether to go out to lunch or bring it to work with you. On one hand, a spending plan gives you the ability to say "No" to buying something you don't need. On the other hand, a spending plan also gives you the freedom to buy something guilt-free because you know you have the money to make the purchase. And don't forget, when you cash your paycheck, the first person you should pay is yourself. The old adage of saving money for a rainy day has a lot of truth to it. Setting aside a percentage of your pay in a "Just in case" account is a simple and affordable means to be prepared. Bad things happen to good people. And it might have been unexpected expenses that caused your bankruptcy. However, an emergency fund just might help mitigate some of the effects of future emergencies or setbacks.

Rebuild Your Credit 
It is no secret that bankruptcy is a black mark on your credit report. But credit scores can be rebuilt. And it is important for your financial future to repair your credit. After you have made your spending plan and know that you can live by it, consider getting a secured credit card. This is a card that is secured by a cash deposit you make. Even though a credit card can get you into trouble, it can also be a tool to improve your credit score. By using this secured card to make small purchases and paying off the balance every month, you will show that you are a good credit risk, and your credit score will start to rise. Even if you plan to never borrow another dollar, you need a good credit score. Your credit score affects things such as your insurance rates, whether you can get a cellular phone, and rental applications.

Ask a Bankruptcy Attorney 
As you go through the process of your bankruptcy, speak with your bankruptcy attorney about resources that you can use to get a fresh start.

There are organizations in Mankato, Minnesota that can help you with secure your financial future.