What is Chapter 7 Bankruptcy?
Chapter 7 is a specific type of bankruptcy that presents an efficient method to discharge or eliminate many outstanding debts. By filing for Chapter 7 bankruptcy, you may potentially eliminate the following: outstanding medical bills, credit card debts, utility bills, personal loans, legal judgments, payday loans, and more. Please note, however, that Chapter 7 bankruptcy does not eliminate or discharge all types of debts, including alimony, child support, student loan debts, and many taxes.
Because of this outstanding ability to discharge debt, many people look to Chapter 7 bankruptcy as a quick way to get rid of debt and start fresh financially. Considering that divorce is a similar way of starting fresh after a marital relationship ends, perhaps it should not be surprising that Chapter 7 bankruptcy and divorce sometimes rub shoulders with each other. In fact, there are many reasons why people may opt to file for Chapter 7 bankruptcy before, during, or after their divorce proceedings have concluded.
Not everyone is eligible for Chapter 7 bankruptcy. An individual must meet certain monthly income requirements as well as other eligibility criteria. For a more complete understanding of Chapter 7 bankruptcy, its benefits, the eligibility requirements, and its disadvantages, please contact our experienced legal team to schedule your initial consultation.
What Are the Pros and Cons of Filing for Chapter 7 Bankruptcy Before, During, or After a Divorce?
Filing for and completing Chapter 7 bankruptcy can take less than half a year to complete. However, that bankruptcy will remain on your financial record for years to come. Just the same, though, the benefits offered by Chapter 7 bankruptcy may be worth it, especially for those going through divorce.
Among the primary benefits of filing for Chapter 7 bankruptcy include the following:
- Chapter 7 bankruptcy filers have a high rate of success in discharging their debts.
- Halts debt collection efforts.
- Maintain access to banking and credit card lending.
- Permanent debt relief in as little as six months.
- You get to keep your property.
Filing for bankruptcy may freeze legal matters surrounding your debts and assets during divorce proceedings. If your divorce is ongoing, this means that filing for Chapter 7 bankruptcy will likely result in halting property division until the bankruptcy case has concluded. This is because when you file for bankruptcy, all your property and assets get wrapped up in the bankruptcy estate.
Does Chapter 7 Bankruptcy Stop Collection Efforts?
Divorce is expensive, to say nothing of the fact that many marriages end because of poor financial handling. Filing for Chapter 7 bankruptcy stops debt collection efforts instantly. The moment your case enters bankruptcy court, you gain protection from creditors and lenders. Filing bankruptcy triggers an automatic stay on all collection actions. Phone calls, wage garnishments, and other collection efforts should stop. If creditors continue their efforts to collect, you may seek additional legal action.
Can You Keep Your Property if You File for Bankruptcy?
The vast majority of those who file for Chapter 7 bankruptcy get to keep all of their belongings. Most property and assets are considered exempt property from lenders and creditors. If you decide to keep your motor vehicle, you may still be responsible for car payments. If, however, you decide to get rid of your car, Chapter 7 bankruptcy may allow you to give up the vehicle and your car loan.
For more details, it is strongly recommended that you contact an experienced asset protection lawyer at our law firm for a confidential consultation.
Is it Better to File for Chapter 7 Bankruptcy Before or After a California Divorce?
If you are filing for bankruptcy before a divorce, then Chapter 7 bankruptcy is probably the way to go, especially if the divorce is amicable or uncontested.
As a rule, it is wise to keep divorce proceedings and your bankruptcy case separate from each other rather than filing them at the same time. The legal complications and crossover between the two legal matters can slow down the processes of both issues, costing you more time and money before each is resolved.
A pending Chapter 7 bankruptcy filing can limit a divorce court’s ability to divide marital (shared) assets. Additionally, issues that commonly arise in divorce cases, like child support, child custody, and spousal support, may slow down the conclusion of your bankruptcy case.
Considering all of these factors, it would be preferable that you do not file for bankruptcy and divorce at the same time.
What about filing for Chapter 7 bankruptcy after a divorce? Just as divorce is meant to provide a fresh start in your life, so too is bankruptcy. But it could be that the most optimal time to file for bankruptcy has already passed. Filing for Chapter 7 following a divorce is likely to cost more money, could be prolonged by bitter or contested divorce proceedings, and it may be too late to protect you from all of the creditors out there looking to collect on debts.
Will Your Credit Be Left Intact After Filing for Bankruptcy?
Your credit is likely to take a hit after filing for bankruptcy. Your interest rates will also likely become higher after bankruptcy. However, bankruptcy should not affect your credit score long term. Once bankruptcy has been discharged, you have the opportunity to increase your credit score.
Can Divorced Spouses Jointly File for Bankruptcy in California?
You cannot hope to file for bankruptcy together unless you are still legally married. Filing for Chapter 7 bankruptcy may be possible prior to divorce but not after.
Some people opt to wait to file for bankruptcy until after divorce because only one spouse plans on filing for bankruptcy. If that sounds like you, speak to an experienced bankruptcy attorney today.
Schedule a Consultation with an Experienced California Divorce Attorney Today
The Law Office of Patrick O Kennedy has years of experience representing both divorce cases and bankruptcy cases in the state of California. Our extensive experience provides us with exceptional knowledge of how to better represent your interests as you pursue the most optimal outcome for both your divorce case and your bankruptcy filing.
To learn more about our legal services, please schedule your initial case evaluation today by contacting our law office at (714) 701-6356.