Lawyer Gal's Blog

A Young Lawyer's Perspective

Planning to fight a divorce? Plan to get a bankruptcy attorney, too.

Many experts agree that there is a link between the 1.2 million people who file for divorce in the United States and the 1.4 million that file for bankruptcy.   VISA corporation did a survey over the past few years and found that divorce is the 4th most common reason people file for bankruptcy.

Attorney fees certainly may lead to a financial strain. However, the structure of property division may also contribute to insolvency.  When a couple splits, they divide both assets and debts.  Sometimes, one spouse hasn’t been in the work force for years and finds her skills rusty.  Keeping up with her debt obligations becomes impossible, and coupled with the financial hit she took for attorney fees, she may find bankruptcy the only alternative.

To add to the mess, all debts incurred during marriage remain intact after marriage.  If one spouse who was assigned a debt in the divorce decree defaults, the other will be liable to creditors.  So, for example, an ex-husband was the breadwinner and he was assigned all the debts in the divorce decree.  The ex-wife moves to a small apartment and slowly re-enters the work force.  She’s barely getting by…Suddenly, she gets a call from a collection agency telling her she owes $5000 on credit card debt.  To her dismay, her ex had lost his job and stopped paying the debts.  In this scenario, bankruptcy would probably be the only option.  I bet she wished she had mediated instead!

June 23, 2010 Posted by | Your legal rights | , | 2 Comments

How does filing bankruptcy IMPROVE credit?

A lot of time, people’s credit improves after bankruptcy.  Most people who file are already behind on payments, have high balances and face collection accounts – so there credit score isn’t usually very good.

Although bankruptcy usually stays on credit reports for 7-10 years, people often find it easier to obtain credit after a discharge.

  • A debtor’s credit report is essentially wiped clean after bankruptcy: all the late payments and records on unpaid debts are marked as “included in Chapter 7 Bankruptcy.”
  • Creditors know that the Bankruptcy Code permits filing once every 8 years, so someone fresh out of bankruptcy cannot turn around and refile.
  • Income that otherwise would be spent on debts “frees up,” allowing people to build credit with timely payments.
  • Bankruptcy shows that you are dealing with your debt, as opposed to letting it compile.  Some banks would rather see this.
  • Developing new lines of credit can improve your score rapidly.

May 31, 2010 Posted by | Uncategorized, Your legal rights | , | 1 Comment