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If bankruptcy and divorce are both options, talk to a skilled lawyer

Legal counsel should be very familiar with both areas of law to counsel such a client.

It is no secret that financial problems are one of the top reasons for divorce. When a person wants to divorce and the financial picture is serious, it is smart to get advice and representation from an attorney who regularly handles both areas of law: family law and bankruptcy. Every situation is unique and it cannot be overemphasized how complicated the legal and procedural issues can be when both divorce and bankruptcy are potentially involved.

Is bankruptcy a good idea?

The lawyer should go over with the divorcing client the pros and cons of bankruptcy in general and in the case of this divorcing debtor. Is the debt significant enough to go through the cost and time involved in a bankruptcy proceeding? Are there alternative ways to handle the problematic debts like renegotiation or refinancing?

Other issues may include: What property would the person be able to keep in bankruptcy considering what is owned before the divorce and what the person is likely to own after the property settlement? What debts would be dischargeable in bankruptcy after divorce and how is the division of debt likely to be resolved? Which debts are joint and which are individual in only one name, and will that matter in terms of who inherits them and their dischargeability in bankruptcy?

It also must be considered whether the debtor is better to file under Chapter 7 (of the U.S. Bankruptcy Code) in a liquidation bankruptcy or Chapter 13 reorganization. So many issues may arise in this decision. For example, if the family home is in foreclosure and the party wants to keep the house in which to raise the children, Chapter 13 probably makes more sense.

Timing

One of the biggest issues is whether bankruptcy should be filed before divorce - jointly as a married couple or individually - or after the divorce as a single person. So many questions can impact this decision.

It may be important for the parties to file for divorce quickly to obtain court orders establishing custody arrangements and support orders, making bankruptcy the secondary concern. Alternatively, bankruptcy may take priority because the bank is threatening foreclosure or to stop other collection activity.

Settlement agreement

It is very possible that a Massachusetts couple could negotiate a comprehensive settlement of all of the legal issues in their divorce. If one or both of them plan to file for bankruptcy, the parties will need to carefully consider details of division of property and assignment of debt.

It would be important for the lawyer to draft a settlement agreement with care, taking into account provisions that could impact the bankruptcy. For example, the automatic stay in bankruptcy does not stop payment of marital support obligations like child support or alimony and future payments of this nature should be clearly defined as such in the agreement. Similarly, marital support obligations are normally not dischargeable (extinguished) in bankruptcy.

If the parties are unlikely to reach a settlement and the legal issues will be decided by the judge, the outcome of property and debt division is less certain. This uncertainty could also impact decisions related to bankruptcy.

This article is only the start of a much more complicated and comprehensive discussion the client must have with his or her attorney.

The lawyers at Johnson, Sclafani & Moriarty, Attorneys at Law, represent divorce clients who also contemplate bankruptcy across Western Massachusetts.

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Johnson, Sclafani & Moriarty, Attorneys at Law
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West Springfield, MA 01089

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