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Bankruptcy or Divorce?

Which should I file first?

Over a decade of experience practicing law and listening to numerous stories from clients over the years, I’ve realized that more often failing marriages and financial trouble go hand in hand.

Of course, marital problems are not always the reasons people seek bankruptcy relief. Many file for bankruptcy for different reasons. Reasons that are often more complex than just being able to make ends meet. A lost job, illness, injury or catastrophic events no one could have foreseen, often lead to exploration of financial relief.

In exploring options of divorce most people are quick to consult a competent divorce attorney. Never stopping to think about the consequences a divorce may have on their debt obligations. Bankruptcy cases involving a recent or pending divorce must be analyzed thoroughly by a bankruptcy attorney. Issues that arise in bankruptcy are like none other and are many times unclear or overlooked when attempting to obtain a divorce.

While impossible to cover each issue one must consider in divorce and bankruptcy, I will describe 3 common issues I encounter most often.

Divorce is a very emotional, upsetting and challenging event.

That said, those involved in divorce proceedings must ask questions. Then ask more. Emotions often cloud your judgment and cause you to react differently or dismiss important consequences you would not otherwise overlook. Common expression of clients, “I just wanted it over with” or “I just didn’t think he/she would do that.”

  1. Which do I file first? Bankruptcy or Divorce? It depends.

Experience has proven that if division of debts and neither party can sustain debt long term, then bankruptcy is the often the answer. Reducing costs (that neither party can afford) of litigating a divorce makes bankruptcy a great first solution for both parties.

  1. Will the party who agrees to pay the debt actually DO IT?

If a spouse agrees to take on the debt as part of the divorce and ultimately does not meet the obligation, it can damage the other party’s credit and create unintended consequences never considered when drafting the divorce agreement. 11 U.S.C. Section 523 (a) (15) Bankruptcy Code, sets forth an exception to discharge of a debt owed to a spouse or former spouse incurred during a divorce. This exception from discharge is only enforceable by the spouse. The creditor to whom the debt is owed cannot collect from the bankrupt spouse.

A common scenario: The wife agrees to pay a joint credit card debt per a divorce decree and holds the husband harmless. The wife then files bankruptcy. The credit card creditor then attempts to collect from the husband on the joint debt the wife was decreed to pay as part of the divorce. Because of the creditor’s collections, the husband incurs actual damages (i.e. garnished wages). Now the husband has a right to file action in the court where the divorce was finalized seeking damages, court costs, and attorney’s fees. However, the practical application of seeking damages is often unfruitful when one party of the divorce is bankrupt. While the husband is filing motions, and seeking relief from the wife’s contempt, his credit score takes a nose dive and wages are possibly being garnished. Creating a lot of chaos and frustration in his post-divorce life.

  1. Am I just looking for a quick fix or have I really thought this through?

Ask questions. Then ask more questions. Remember emotions cloud judgement, cause adverse reactions, and cause you to overlook important consequences. A “quick” divorce or “not thinking he/she” would do that will keep you from incurring detrimental consequences.

In my practice, I’ve encountered many unique and unusual situations from parties seeking financial advice after a divorce. It is impossible to cover every possible scenario here. If financial stress and debt are issues in your divorce, I hope you now understand the importance of seeking counsel from a bankruptcy attorney prior to filing. The initial bankruptcy consultation is offered at no charge.  Call me if you have questions about your bankruptcy options.   It is a decision that may determine your level of success after divorce.

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Probate Sounds Scary & Expensive. What is it and do I need it?

Debbie Long, Attorney

I get this question all the time. Most people who come in and get wills prepared come in with the idea that probate is a very scary, expensive task and they want to avoid it like the plague. That’s really not the case usually. Especially if you have consulted with an attorney and taken care of some of the things that require very little effort ahead of time but cannot be fixed after you pass away.

The determining factor about whether or not you need to undergo the probate process is not whether or not you have a will. The probate process is very different when you have a will versus when you don’t. The major determining factor is what type assets you have. In some respects, probate is a method to convey title to your assets in an orderly fashion so that the recipient of such property holds proper title without any clouds or liens on the property. Your attorney can advise you whether probate is even necessary in your situation.  

So, your first step is obtain information and call an attorney who can help you to determine whether the decedent has assets that should be included in the Alabama probate estate. Some items that the decedent owned may not be “probate assets” under Alabama law. These “non-probate assets” are not part of the Alabama estate (but may be considered part of the taxable estate for estate tax purposes). You should look at everything the decedent owned to determine which items are Alabama probate assets and which are not. Examples of probate assets include real estate owned only by the decedent, bank accounts in the name of the decedent, and life insurance policies that fail to name a beneficiary or are payable to the estate.  If the decedent owned any of these assets, Alabama probate will probably be required. But with the help of a knowledgeable and helpful attorney, this process can be accomplished without issue. It’s always wise to prepare and make this emotional time less stressful for your family by consulting an attorney and learning what will be helpful in your given situation and would suit your needs.  Information and education is never a bad thing! These estate planning documents are very economical when compared with the hassle and expense your family may suffer trying to probate your estate without them.  

If you have questions about your estate plan or wills, powers of attorney of healthcare directives that you may already have in place but need updating, call and make an appointment.  I would love to talk with you. Give me a call at 256.508.3015 or complete the contact form.

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Testimonials

Business and Corporate Law

“Debbie Long promptly provides us practical legal advice and services on a wide variety of issues we face in business. She is pleasant to work with, tough when we need her to be and cost effective. I recommend her highly.” Madison Corporate Client

“Debbie Long is great with customer service and timeliness. I have used legal counsel for many different reasons, and Debbie is always my standard for performance and excellence.”  – Athens Business Owner

Wills and Estate

“My husband and I were so pleased with Debbie’s expertise in helping my parents with their wills and estate planning that we, too, contacted her to prepare ours. The documents Debbie prepared for our family members are precise and thorough. She is professional, skilled, and lends personal care.”  – Athens Wills and Estate client

“If you need a smart, kind and caring attorney, Debbie Long is the one you should call.  She helped us so much in making out our wills. She thought of things that we never thought about including. Thanks again for your help!” – East Limestone Client

Bankruptcy

“As a respected employee of a local corporation I was relieved to find that Mrs. Long was not only professional but discrete with my bankruptcy case.  She handled my case and me with dignity even though I felt like a failure in so many ways.  Mrs. Long was able to help me get a fresh start after my divorce had left me in an impossible financial situation.  As a single mom, I can’t tell you how much her help, support, and advice made me feel like I had control of my life and finances again.  If you are looking for an attorney who can provide you with options, a path forward, and discreetly handle your case – Mrs. Long is the attorney for you.”  – Huntsville Bankruptcy Client

Child Advocacy

“Debbie is a great advocate for children, genuinely cares about the details of each case and each child. She helped us with a very difficult case. Her attentiveness to our case helped us get the positive results I needed to provide a permanent placement for these children who are now thriving in my care.”Limestone CoChild Advocacy Client

Divorce

“Debbie helped me with my uncontested divorce.  She made an emotional and scary time much easier for me and my kids.  It was more cost effective because of her knowledge and care about my situation. She does great work.  I highly recommend her.”  – Harvest Uncontested Divorce client

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