Going through a divorce can be tough, but it can be even more challenging when coupled with the financial burden of bankruptcy. The stress of dealing with debt can lead to depression and emotional distress, making an already difficult situation even more overwhelming.
It's important to know that you're not alone in this struggle. In fact, statistics show that divorce is one of the top ten reasons why people file for bankruptcy. A recent study found that 24.4% of bankruptcy filers in the US are recent divorcees.
We've worked with many individuals who have faced bankruptcy after a divorce. Through our experience, we've learned some important things to consider. Here are five key factors to keep in mind when dealing with bankruptcy after divorce:
1) Know your income
Understanding your finances is critical when deciding how to manage your debt and which bankruptcy chapter to file under. It's essential to know your monthly income, disposable income, and other financial details, such as child support or alimony payments. By answering these questions, you can take control of your finances and make informed decisions.
Estimating your income for the past 12 months is also crucial to understand your variable income. If you're currently searching for a job, you can estimate your potential earnings to determine your potential income. This information is necessary for the next phase of the process.
2) Know your debt
Divorce can be a challenging time, especially when it comes to debt. Many people wonder who will be responsible for the debt and how it will be paid off. It's important to have a good understanding of your debt so you can make informed decisions about bankruptcy or other debt relief options.
To get a clear picture of your debt situation, you can check your credit report with all three credit reporting bureaus. The Fair Credit Act allows you to access a free credit report from each bureau once a year. This will give you a detailed breakdown of your debt and your monthly financial obligations to pay it off.
By understanding your debt, you'll know how much of your income is available after paying off your debts and the impact of pursuing debt relief. If you need help figuring out your monthly payments and how long it will take to pay off your debts, try our debt payoff planner. This tool provides insight into your monthly payments and the length of time needed to settle your debts.
3) Know your other expenses
If you're struggling to pay off your debt, it's important to assess your income and expenses. A divorce can have a significant impact on your financial situation, so it's crucial to understand how it affects your expenses.
Fortunately, the first step is simple: track your spending. You can do this by jotting down your expenses on paper or using a tool like Microsoft Excel. The goal is to gain a clear understanding of where your money is going and identify areas where you can cut back.
4) Know all your options of debt relief after divorce
So, you've taken the first steps towards managing your finances, but what if you find that your expenses exceed your income? Don't worry, there are debt relief options available to help you get back on track. Here are some of the main options:
Chapter 7 Bankruptcy
Have you heard of Chapter 7 Bankruptcy? It's a type of bankruptcy that's often referred to as liquidation bankruptcy. Why? Because it allows you to get relief from debt faster than any other bankruptcy method by liquidating your assets to pay off your creditors. Plus, you can get your bankruptcy discharge within 90 days of filing, which is a huge advantage.
But before you rush to file for Chapter 7 bankruptcy, you need to take the means test to see if you qualify for the discharge. This test uses IRS data, administrative multipliers, and census information to determine the income limits based on your state, income, and household size. You can find more information on the means test on the Department of Justice website.
It's important to note that while bankruptcy can help you get out of debt, it also has its downsides. For example, it can negatively affect your credit score and will remain on the public record for several years.
Chapter 13 Bankruptcy
If you're struggling to keep up with your debt, Chapter 13 bankruptcy might be a viable option for you. This form of bankruptcy, also known as wage earners bankruptcy, requires monthly payments over a period of three to five years. One significant advantage of Chapter 13 bankruptcy is the ability to keep high-value assets like a car or a house, even if their value exceeds the exemption ceiling.
To determine if Chapter 13 bankruptcy is right for you, try using a Chapter 13 payment calculator. This tool can help you estimate your monthly payments and decide if this form of debt relief is feasible for your financial situation.
If you're struggling with multiple debts, debt consolidation might be a solution worth exploring. Essentially, debt consolidation involves taking out a loan to pay off all your existing debts, leaving you with just one monthly payment to manage. This can simplify your finances and make it easier to keep track of your debt. However, it's important to note that debt consolidation loans are typically only available to those with good credit scores.
Have you ever heard of debt management? It's a method where a company negotiates with your creditors to lower your interest rates and monthly payments. Sounds great, right? But here's the catch: even though most debt management companies are non-profit, they still charge monthly fees for their services.
It's important to keep in mind that some creditors may not be willing to work with debt management companies. Plus, this method tends to be more expensive than other options out there. If you're curious about how debt management compares to debt settlement, check out this article for more information.
Have you heard of debt settlement? It's a debt relief method where you can negotiate with your creditor to pay an amount that's less than what you owe. While this option can save you money, it's important to consider the potential downsides before making any decisions.
On the plus side, debt settlement can help you avoid bankruptcy and get out of debt faster. It can also provide relief from the stress and anxiety of dealing with overwhelming debt. However, it can also negatively impact your credit score and result in additional fees and taxes. It's important to weigh the pros and cons and consult with a financial advisor before pursuing this option.
5) Make the most informed decision
If you're considering filing for bankruptcy, it's important to make informed decisions rather than relying on guesswork. Seeking help from a trusted friend who understands the process or hiring an impartial financial expert can be a great start.
The key is to assess your financial situation and effectively communicate it to your creditors. Since each debtor's financial situation is unique, the solution will also be unique to you. Speaking with someone and allowing them to ask questions can help you gain clarity.
Like any financial decision, debt relief methods such as bankruptcy have their pros and cons. If you're looking for clarity on bankruptcy after divorce, consider the five factors mentioned above. They can be a valuable resource in making your decision.