Bankruptcy and Divorce

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The Connection Between Debt and Divorce

The Russian novelist Leo Tolstoy once wrote, “All happy families resemble one another; every unhappy family is unhappy in its own way.” But when it comes to divorce, we at Chang & Diamond, APC, in San Diego & Riverside County, California, have found that unhappiness often boils down to one issue: money.

To obtain legal assistance with the financial problems that have complicated your marriage, contact the bankruptcy attorneys at Chang & Diamond, APC, today.

Diagnosing a Problem

Think about it. When you earn a good salary, save a significant portion of your paycheck, and pay all of your bills on time, life is good. Your spouse is happy and you feel good about yourself. But when you finances stall and you must deal with unpaid bills, maxed out credit cards, and harassing creditors, your relationship with your spouse can be overshadowed by debt. You cannot spend, you have to cut corners, tempers flare, and blame is exchanged.

Hiring an inexperienced legal attorney to handle your case not only results in sloppy and faulty legal representation but also extra financial costs added to your divorce costs, not to mention the psychological damage of such an unsettling experience.

People often turn to debt consolidation agencies first, but such an action requires paying additional fees before any activities on resolving the matter even begin to take place. Trying to negotiate debt on your own is also ill-advised, especially if you don’t contact an experienced debt relief attorney beforehand or you get inaccurate and incoplete information from unreliable sources.

Navigating Bankruptcy Timing in Relation to Divorce

Bankruptcy can significantly alter the landscape of tax liabilities during a divorce. Typically, joint tax debts can become a complex issue, as both parties are generally liable. If one party declares bankruptcy, the IRS may pursue the other for any outstanding balances. Interestingly, under Chapter 7 bankruptcy, dischargeable tax debts can be eliminated, whereas Chapter 13 provides a structured repayment plan without accruing further penalties or interest.

When navigating bankruptcy in the midst of divorce, it’s crucial to understand which taxes can be discharged. Income taxes due more than three years ago may qualify, provided filings were timely and accurate. However, other liabilities like property taxes or penalties for fraud remain non-dischargeable. Strategic timing of bankruptcy filings could influence tax obligations significantly, making expert legal counsel indispensable in these cases.

Bankruptcy on Tax Liabilities in Divorce Situations

Deciding whether to file for bankruptcy before, during, or after a divorce can significantly impact both parties’ financial futures. Filing for Chapter 7 bankruptcy before a divorce can simplify the division of debts and assets, as it typically results in the discharge of unsecured debts within a few months. This means fewer joint debts to contend with during divorce proceedings. However, qualifying for Chapter 7 requires passing a means test, which might be complicated by a combined household income.

On the other hand, Chapter 13 bankruptcy, involving a repayment plan spread over three to five years, might be more strategic during or after a divorce. This approach allows individuals to handle larger debts or secured debts that Chapter 7 does not cover. Filing during a divorce can complicate matters, as the ongoing payments will need to be split or negotiated as part of the divorce settlement. Post-divorce filing is often preferable when individuals have a clearer picture of their financial obligations moving forward.

Understanding the nuances between Chapter 7 and Chapter 13, and the timing of filing relative to divorce, is crucial for protecting personal financial interests and ensuring a smoother transition into post-divorce life.

Experienced Lawyers Providing a Compelling Solution for Bankruptcy and Divorce

At Chang & Diamond, APC, our lawyers believe that divorce and serious economic problems often go hand in hand—if you are able to resolve your financial problems, you can solve your relationship problems. Filing for Chapter 7 or Chapter 13 bankruptcy may provide the relief you need to pick up the pieces and work together toward financial and domestic security.

“No one ever imagines filing for bankruptcy protection. And who would you call, who can you trust? Chang & Diamond were recommended to us, and they did a top-notch job. Our attorney was always available, she answered all of our questions and quieted all our concerns about the process. Richard Chang represented us at the hearing and he did a superb job. Real people, great lawyers, and an excellent staff. What more could you ask? —A.D.”

If you would like to obtain more information on how we can help you develop a plan aimed at prosperity and marital harmony, contact Chang & Diamond, APC, to schedule a free initial consultation.

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