You may be experiencing one of the most stressful seasons of your life. To add to the stress, you also have to understand whether you should also file for bankruptcy after divorce.
You are not alone. In fact, divorce is one of the top 10 reasons why people decided to file for bankruptcy according to a recent research study accounting for 24.4% of those looking to file bankruptcy.
We speak to people almost daily who are considering bankruptcy after divorce. As such, we came up with 5 considerations that will help you decide whether to speak with a bankruptcy attorney.
5 Things to Consider About Bankruptcy After Divorce
1. Know your income
Understanding your finances is crucial to help decide how to pursue debt relief. Will you be getting alimony or child support? Will you be paying alimony or child support? How much income have you received in the past months?
Answering these questions will help you estimate how much income you will be receiving each month. You may choose to estimate your income from the past year. Estimating your income may especially help with variable income.
If you are now looking for a job because your spouse worked, you may want to estimate how much income you will receive. Calculating and estimating the next year of income will help you with the next step in the process.
Finally, you may also want to read how to protect yourself financially from a post-divorce bankruptcy to help you understand how to prepare financially.
2. Know your debt
Debt can be difficult to understand to help with your decision of bankruptcy after divorce. Who will be liable for the debt and how will the payments work? How much debt do you owe?
Knowing your debt is an essential step to understanding whether you may not have to pursue debt relief. For this step, you may be interested to go through each of your credit reports with all three bureaus. The Federal Trade Commission under the Fair Credit Reporting Act allows you to receive a free credit report from each of the bureaus every 12 months.
By accessing your free credit report, you will be able to know exactly how much debt you have and understand your monthly obligations. You then will know how much your income will be reduced each month by these debt obligations if you choose not to pursue debt relief. At this point, you may want to research a debt payoff planner that will provide insights as to how much your obligation is each month and how long it would take to pay off your debt.
Finally, you may be interested to learn about how to utilize some debt reduction strategies.
3. Know your other expenses
Understanding your expenses post-divorce will help you understand whether your income and debt payments will be enough to cover the rest of your expenses. For this, you may want to check out the article covering how to master a budget after divorce.
This step is clearly important because you need to know where every dollar is going each month. You can look at past expenses and write them out or put them in Microsoft Excel. Whichever way you choose, the important thing is to understand where your money is going each month.
4. Know all your options including bankruptcy after divorce
You may have done the three steps above and realize that there isn’t enough income to meet the expenses each month. Let’s go through some of the main options for you:
- Debt Consolidation
Debt consolidation is often referred to in the context of a debt consolidation loan where you consolidate your debt into one payment. You may be able to get a lower interest rate, but you often need a good credit score to pursue this option.
- Debt Management
Debt Management in the form of debt relief where a debt management company would negotiate with your creditors to lower your interest rate. Most debt management companies are non-profits but do charge a monthly fee for its services. There are some creditors who will not work with debt management companies, and this option can be more expensive than alternatives. Many folks may compare debt management vs debt settlement.
- Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is a liquidation bankruptcy. Chapter 7 is often a quicker debt relief option. You may be able to be discharged in as little as 90 days from your debt. A Chapter 7 bankruptcy is also often less expensive. You may have to qualify for a Chapter 7 bankruptcy via means testing. The Chapter 7 bankruptcy means test uses Census, IRS data, and administrative multipliers to define income limits based on household size, income, and state.You may know that bankruptcy provides fast debt relief, but it’s also important to weigh the downsides of bankruptcy after divorce such as what happens to your credit report and credit score or how the bankruptcy stays on your public record.
- Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is also referred to as a wage earners bankruptcy per the IRS. This type of bankruptcy often requires a monthly payment each month, and it often lasts three or five years. The benefit of a Chapter 13 bankruptcy is that you can often keep a high valued asset that has significant value over the exemption. A high-value asset may be a home or a vehicle.For a Chapter 13 bankruptcy, you can use a Chapter 13 payment calculator which will provide an estimate about what your monthly payment would be. You will then be able to see whether you can afford that payment each month.
- Debt Settlement
Debt settlement is the form of debt relief where a debt settlement firm or you would negotiate with your creditors for a lesser owed amount. The debt often has to be passed due to the creditors to negotiate. You may save money doing this option, but there are pros and cons to debt settlement and there is also a credit score impact with debt settlement.
5. Make the most informed decision
Making the most informed decision will help you decide whether bankruptcy is right for you. You may want to bring in a trusted ally who understands your situation. You may want to speak with an unbiased financial expert. The important thing for this step is to be able to tell your financial story. Your financial story is unique. There is not a one-sized fit all approach to your financial situation. Speaking to someone and allowing them to ask questions can help you gain clarity about the best solution for you.
Debt relief including bankruptcy has pros and cons. You may be able to bring financial clarity and peace by considering these 5 things about bankruptcy after divorce.