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When is bankruptcy your best option after divorce?

Divorce can have a devastating impact on your credit and your financial situation as a whole. Sometimes, spouses pile on debt to joint credit cards on their way out the door. In other cases, people who relied on their husband or wife to make all the financial and investment decisions learn too late that they were reckless with that money. Divorced spouses can find themselves with more debt than they can pay off and credit scores so low that moving on with their life can be extremely challenging.

One family law attorney says, “Clients are often devastated when their spouses leave them high and dry and responsible for all debts in a marriage. This can cripple your financial reserve and credit score.”

Many experts recommend getting a copy of your credit report as soon as possible when divorce is on the horizon and keeping an eye on it throughout the process. Your family law attorney and financial advisor can help you determine how best to deal with joint credit cards and what steps to take to separate yourself from your spouse’s credit issues, if possible.

Sometimes, if your credit score seems irreparable and the debts insurmountable, the best option may be bankruptcy. If that is the route you decide to take, it may be best to wait until after the divorce. As one bankruptcy attorney explains, “An advantage of getting divorced first is that it can help a debtor fall under the means test, and thus qualify for Chapter 7.”

If you qualify for Chapter 7, or “debt liquidation” bankruptcy, you can get rid of unsecured debts like credit cards. This type of bankruptcy will stay on your credit report for a decade. However, you can take steps during that time to rebuild your credit.

If you aren’t eligible for Chapter 7, you might want to consider Chapter 13 bankruptcy. It involves establishing a plan to pay off your debt in three to five years. A Chapter 13 bankruptcy will appear on your credit report for a shorter period (seven years) than a Chapter 7 would.

If you’re considering bankruptcy as you go through your divorce or in the aftermath, you should discuss your options with a bankruptcy attorney. An attorney experienced in family law and bankruptcy law can be particularly valuable in these situations.