If they decide to go forward with the bankruptcy first, they will have the benefits of:
On the other hand, if it’s better in your case to divorce before a bankruptcy filing, then a consultation with a bankruptcy attorney will enlighten you in that regard as well.
Clients understandably are concerned that a bankruptcy will have a serious impact on their credit. That is a reasonable fear, but you can take steps to start rebuilding your credit immediately — and you should start seeing improvement in your credit score after a few years.
I’ve also seen clients concerned about the negative connotation of bankruptcy and feeling embarrassed that they are in that position. That’s a common but unfortunate perception, and it’s not in keeping with the theory under which the bankruptcy laws were created. A bankruptcy is designed to give a fresh start to someone who had some unfortunate circumstances in which debt became unmanageable. It could be because debt accumulated from a medical condition and lack of adequate insurance, or a job loss. It could also be because of poor but not dishonest decisions that led to them being in a debilitating financial bind.
I recently saw how bankruptcy could serve the purpose of a fresh start to a separating couple. I suggested that they consult with a bankruptcy attorney at the first meeting since they were unable to pay their mortgage and other debts, including a judgment lien against their house, but did have some equity in the house.
They decided to file for bankruptcy, and work out a modification of the mortgage in the bankruptcy court (which is a much easier process than trying to work out a modification on your own). The judgment lien will be unenforceable against the property due to a failure of the creditor to file a claim in the bankruptcy court. The rest of their debts were manageable for them, and they can enter into a payment plan under the Chapter 13 rules. Had they not consulted with a bankruptcy attorney, their home would have been foreclosed, and their equity lost.
We hear so much about how big corporations take advantage of bankruptcy laws that we lose sight of the very valid reason for a bankruptcy filing — to give a much needed helping hand to people who are suffering from overwhelming debt.