It’s possible that you’re currently passing through a sad period of filing for divorce and bankruptcy, or you recently filed for one. And you have soo much financial burden on you, a season of debt that in itself is a common source of depression and emotional stress, add this together, and you’re left with a nerve-racking, undesirable situation that is known to give one of the most emotionally disturbing feelings.
If you’re passing through such a situation, have it in mind that you’re not alone here. Statistically speaking, divorce ranks among the ten most prevalent reasons why people file for bankruptcy. A very recent study showed that 24.4% of those filing for bankruptcy in the US is recent divorcees.
In our encounter with individuals who want to file for bankruptcy after a divorce, we have learned a lot of things, some of which we’ll mention in this article. Here are 5 things to consider about bankruptcy after divorce.
1) Know your income
It is very crucial that you have a good understanding of your finances because that will help you to decide how to get a bankruptcy discharge, and which bankruptcy chapter to file under. You need to know details such as your monthly income, your disposable income. You also need to be able to answer some questions like; Will you be paying child support? Will you be getting child support or alimony? And other questions related to your finance.
When you can answer these questions, it helps to properly position you to be in charge of your finances. You should also estimate your income for the past 12 months—this way, it’ll help you know your variable income.
If you just started looking for a job, then you may have to estimate your potential earnings to know your potential income. This is needed for the next phase of the process.
2) Know your debt
Debt acquired during a divorce can be difficult to make sense of. The question that rages through the mind of every new divorcee with debt is: who will be liable for the debt and who pays what?
Having adequate knowledge about debt is needed to fully come to a decision to file for bankruptcy or any other debt relief option. For this, you may have to check your credit report with all the three credit reporting bureaus. Under the Fair Credit Act, the Federal Trade Commission empowers you to get a free credit report from each of the bureaus within a 12-month period.
When you access the free credit report, you can know your exact debt and your monthly financial obligation to pay-off those debts. You will know how much of your income is left after paying your debt, and the effect of pursuing debt relief. If you need help in making sense of your monthly obligations, then you should use the debt payoff planner, as it provides you with insight on your monthly payments and the length of time you’ll need to settle those debts.
3) Know your other expenses
To know whether your income or debt payment schedule is okay to settle your debt, you should have an understanding of the effect of a divorce on your expenses.
The step here is pretty straightforward; it simply involves knowing where every money in your account is going. To do this, you can jot down your expenses with a pen and paper, or in Microsoft Excel. Anyone you choose is fine; the motive here is to have a clear understanding of what you spend money on.
4) Know all your options of debt relief after divorce
After doing the first three steps above, it’s possible to discover that you don’t earn enough to meet your monthly expenses. Here are some debt relief options that will help you conquer your debt in no time. Below are the main options:
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is also known as liquidation bankruptcy. This bankruptcy offers relief from debt faster than any other bankruptcy method, as you can get your bankruptcy discharge within 90 days of filing. Another advantage of this bankruptcy is that it’s less expensive.
Before filing under Chapter 7 bankruptcy, you should first take the means test to know if you’ll qualify for the discharge. The means test uses IRS data, administrative multipliers, and census to determine the income limits based on the debtor’s state, income, and household size.
Although bankruptcy helps one to get out of debt easily, it also has its own demerits, part of which is that it affects one’s credit score and will remain on the public record for some years.
Chapter 13 Bankruptcy
Another name for Chapter 13 bankruptcy is wage earners bankruptcy as it involves making monthly payments. The process of getting a discharge through Chapter 13 bankruptcy is between three and five years. One benefit that is attached to this bankruptcy Chapter is that you’re allowed to assets with a remarkably high value over the exemption ceiling. This high-value asset can be a car or a house.
Use a Chapter 13 payment calculator to estimate your Chapter 13 payment plan. This way, you will know if you can afford this, or settle for another debt relief method.
Debt Consolidation is usually described in the context of a debt consolidation loan that enables you to consolidate your total debt into a single bulk payment. If you have a good credit score, then this option is easily usable.
In this debt relief method, a debt management company will negotiate for a lesser rate with the creditors. Although the majority of debt management companies are non-profit companies, they still charge monthly fees for those wishing to hire their services.
It is essential to note that some creditors won’t work with debt management companies. Also, this method is relatively more expensive than other known methods. A comparison of debt management and debt settlement is quite common; you might want to try reading an article on it for more information.
In this type of debt relief method, you will approach your creditor to negotiate to pay an amount lesser than you owe. Although this option allows you to save money, it also has its disadvantages, which you should consider before making any substantive decision.
5) Make the most informed decision
To know whether filing for bankruptcy is the right choice or not, you need to make educated decisions and not just guesses. You can ask a close ally who understands the process for help, or you may hire the services of an unbiased financial expert.
The basic thing here is to understand your financial situation and be able to communicate it to your creditors effectively. Each financial situation is unique for every debtor; as such, the solution will also be unique to you. You can gain clarity by speaking to someone and allowing them to ask questions.
Just like other financial decisions, debt relief methods such as bankruptcy have their own merits and demerits. To give yourself some clarity on bankruptcy after divorce, then you should consider the five things written above about bankruptcy—they’ll help a lot.