Bankruptcy and Divorce

Because so many people going through split are under financial stress, they often reckon about the possibility of bankruptcy as a way to make control of everything. If you’re thinking about bankruptcy, or more importantly, if your spouse is thinking about it, you’re smart to pay attention to this information, because the way you word your split settlement can have a lot to do with how the bankruptcy affects your split, and vice versa.

Money is a very high stress factor in many relationships. Sometimes a link that has money problems will reckon that the answer to their problems is split. Each spouse is likely to believe that the other is mostly responsible for the link’s money problems. This belief may or may not be right. One thing is right, you can split your spouse, but you can’t split the debts incurred during your marriage.

You’re Not Alone

Most of us don’t know how much. Here’s how the U.S. non-business bankruptcy filings have augmented over time. This doesn’t mean bankruptcy is a fantastic thought. It does mean, even if, that if you become involved in bankruptcy, you’ll have more company than you would have had a few years ago.

Both spouses are responsible for the debts incurred during the time of the marriage. Sure, your split settlement will divide up the debts, assigning responsibility for some to one spouse and some to the other. But that split settlement is between you and your ex-spouse; it doesn’t bind the creditor, who can collect the debt from either one of you. This means if your ex-spouse doesn’t pay his or her share of the debts, the creditor can come after you for payment. If your ex files for bankruptcy after the split, the creditors will look to you to fit those debts. If you were barely making ends meet before that happens, your spouse’s bankruptcy could send you into bankruptcy as well.

For those reasons, it may make more sense for you and your spouse to file for bankruptcy before getting divorced. At smallest amount that way you will know where you really stand when it is time to divide the property. You and your spouse need to be able to work collectively on a certain level to accomplish this. If your relationship has deteriorated to the point where you can’t communicate with each other, this option may not be for you.

The prospect of having bill collectors coming after you for the debts your ex was supposed to pay can be unsettling. If you are concerned that your ex will file for bankruptcy, you should bring this up with you attorney so you can discuss ways to protect yourself. Your attorney may suggest that you obtain a lien on some of your ex’s property to aid make sure that you don’t make stuck paying his or her share of the debts.

Support

A fantastic deal of the material on this page deals with a bankruptcy term called “discharge.” You’ll also hear about “discharging” a debt, whether a debt is “dischargeable,” and whether an action affects the “dischargeability” of a debt. Simply place, we’re talking about whether the debtor can make rid of the debt – can make emancipated of it.

Obligations from a split to pay support are not dischargeable in bankruptcy. Period. This includes payments to support a former spouse or minor children. The support obligations that are nondischargeable include child support, alimony or spousal support, and lawyer’s fees from a split or to modify support.

A person (in bankruptcy terms, the “debtor”) can file bankruptcy and can exact the bankruptcy administer even while owing support. It’s just that when the case is finished, the debtor will owe the support obligation with no change. The bankruptcy code section that governs this is 11 U.S.C. §523(a)(5).
Property Settlement

If an obligation from split is in the nature of property settlement, whether it gets discharged is a excellent bit less certain. They’re presumed to be nondischargeable, but the debtor may be able to overcome the presumption and have them discharged. Overcoming the presumption requires a showing that the debtor cannot pay the debt and still take care of himself, his dependents, and his business, or that discharging the debt would upshot in a subsidy to the debtor that outweighs the harm that would be caused to the former spouse or child by non-payment. The bankruptcy code section that governs this is 11 U.S.C. §523(a)(15). There’s a separate description of Discharge of Property Settlement Claims in Bankruptcy.
What Doesn’t Make Discharged

Here are the debts that don’t make discharged in bankruptcy:

* Alimony and child support
* Some obligations for property settlement in split
* Student loans
* Debts arising from fraud or theft
* Criminal restitution

What You Can Do

If your spouse owes obligations to you after split, and if there appears to be a excellent chance the spouse will file bankruptcy, the implication is clear:

Support is excellent. Property settlement is terrible.

What you need to do is to characterize as much of the obligation as doable in ways that makes it clear that it’s intended for support, not property settlement. Annotation that the bankruptcy court will not be bound by what you call the obligation, but if you clearly call it support and it behaves like support, there’s a excellent likelihood the court will find it to be support and will not allow discharge.

If there’s no question that a part of the obligation due to you is property settlement, even if, no amount of verbal window-dressing will change it. So what can you do then?

Reckon security.

What you want to do is take a lien on one or more assets of value – preferably assets that are valuable to your spouse. Then if your spouse proposes later in bankruptcy to have the debt discharged, you can seize the property to pay the debt. It’s messy, and you may make far less from the property than it’s worth, but depending on how much equity the debtor has, the leverage of the lien should aid to make the debtor’s attention in bankruptcy.

One last thought: if both of you are thinking about bankruptcy, you may want to file before you make your split. That way, you’ll know when you split which obligations will be discharged, and you can each negotiate with full knowledge. In addition, filing before split will save you some money, because you’ll pay for only one bankruptcy filing instead of two, and your split will be less complicated.

Tariff tip:

IRS TAX TIP 2011-23, February 02, 2011

If you changed your name as a upshot of a recent marriage or split you’ll want to take the necessary steps to ensure the name on your tariff return matches the name registered with the Social Security Administration. A mismatch between the name shown on your tariff return and the SSA minutes can cause problems in the processing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayers who have a name change.

1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t say the SSA. When newlyweds file a tariff return using their new last names, IRS computers can’t match the new name with their Social Security Number.

2. If you were recently divorced and changed back to your previous last name, you’ll also need to say the SSA of this name change.

3. Informing the SSA of a name change is simple; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office and provide a recently issued document as proof of your legal name change.

4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.

5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each needy claimed on a tariff return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in house of an SSN on the tariff return. Form W-7A is available on the IRS website at http://www.irs.gov, or by calling 800-TAX-FORM (800-829-3676).

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