Transitioning bank to the single-life after your divorce can be tough, especially on your finances. This is why many divorcees end up filing for bankruptcy after the split. Around 15% of individuals who file for bankruptcy are divorced.
Why does divorce lead to bankruptcy?
There are a couple of reasons why divorced individuals find themselves filing for bankruptcy, including:
- Divorce is expensive: Oftentimes divorce, especially when you and your spouse are having a hard time agreeing on terms, can rack up the bills. Thousands of dollars later, you are happily divorced but in a pool of debt.
- Prior debt: If, when you were married, you and your spouse accrued any debt, credit card companies can look to you to pay any debt that your former spouse does not. Similarly, if your spouse files for bankruptcy after divorce, creditors can place the remaining balance on your shoulders. This extra debt often leads divorced individuals to file for bankruptcy as well.
What type of bankruptcy do I file for?
As an individual filing for bankruptcy, you can file for two types of bankruptcy: Chapter 7 or Chapter 13.
Chapter 7 bankruptcy allows the individual in debt to essentially become debt-free without having to pay back the money owed. This type of bankruptcy is also called liquidation bankruptcy, because the bank liquidates your assets in order to pay your debt. It is important to note that child support and marital support are often not recognized in this process, meaning you would still owe this.
Chapter 13 bankruptcy helps the debtor get back on track with their finances by creating a temporary (usually 3-5 year) plan that allows you to pay off your debt. This is often called reorganization bankruptcy, as you are essentially reorganizing your financial life.
When saddled with debt from your marriage as well as divorce, sometimes filing for bankruptcy is inevitable. However, it is not the end of the world, as you can get back on track after filing for bankruptcy post-divorce.