Divorcing Couple with a Mountain of Debt

13 Jan Divorcing Couple with a Mountain of Debt

An all-to-common picture of American domestic dysfunction: a married couple whose marriage cannot be retrieved from the abyss of discord, who trudge into the office of a bankruptcy lawyer to discuss their mountainous load of unsecured credit card debt. As expected, the husband has the lion’s share of the debts in his name, but the wife has significant debts too. He earns a good salary for his family, while the wife works part time near their home.

The couple makes clear their marriage is over, and they are actively seeking to hire divorce lawyers. Should they file bankruptcy now, or wait until the divorce is finished? Should they file chapter 7 or chapter 13? And can the bankruptcy lawyer even begin to advise two people whose legal interests may no longer be aligned, and who will be involved in a possibly bitter divorce battle?

The answer to the latter question often is yes, as long as the couple can tolerate sitting in the same room together for awhile, and as long as both husband and wife perceive that because of their children, both parties still have, and will continue to have, a stake in each other’s financial well being.

The bankruptcy lawyer will need to explain that because he or she has a duty of loyalty to each party, the lawyer cannot give any legal advice about the impending divorce. The lawyer’s advice will need to be limited to the couple’s rights against their creditors. Happily, this is the one subject where the two parties’ legal interests are aligned. The wife might wonder if she can avoid bankruptcy altogether by waiting to see if the family court will award her a hefty child support and alimony package, which might allow her to continue paying her debts. While this might be within the realm of possibility, it could involve substantial sacrifice at a time when there are few financial resources to spare. Most divorcing families experience a significant drop in standard of living, due to the higher cost of maintaining two separate households. However, if the debt load is relieved through bankruptcy prior to a divorce, there are more financial resources to be shared between the parties, rather than diverting those resources to unsecured creditors.

Additionally, the wife has little interest in seeing her soon-to-be ex-husband impoverished after a divorce. It’s in her interest to preserve his paycheck from the unsecured creditors too: after all, her children will be spending alot of time with him, and it’s better for her if she doesn’t have to drop the children off at a low-rent hovel every weekend. This means each party has important reasons to address the debt load in a bankruptcy proceeding, before the divorce is commenced.

Finally, chapter 7 is the appropriate choice for most divorcing couples, rather than a years-long chapter 13 repayment case. It’s probably asking too much from most divorcing couples to maintain a substantial financial enterprise together in the form of a chapter 13.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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