Because bankruptcy matters are handled by Federal District Courts, North Carolina bankruptcy laws are very much the same as in the rest of the United States, with a few exceptions. Divorce laws in North Carolina, however, are unique, and they can impact your bankruptcy in unusual ways.
Liability to Creditors
Divorce decrees typically divide the spouse's joint debts to one spouse or the other. Creditors are not bound by divorce decrees of any state, and they can attempt to collect on joint debt from either spouse after your divorce, regardless of what the divorce decree says. The only way to eliminate joint debt liability is to pay off the debt, refinance the debt in the name of only one spouse, settle with the creditor or discharge the debt through joint bankruptcy.
One Year Window
By far, the most common ground for divorce in North Carolina is a one-year separation. During this separation period, you must live separate and apart from your spouse in different residences. The most common kind of bankruptcy is, Chapter 7, which is typically completed in less than one year. Using this separation period to complete your bankruptcy affords you and your spouse a chance to start over financially after your divorce, and it makes the property division aspect of divorce easier.
Joint or Separate Bankruptcy Filing
You and your spouse can file for bankruptcy together in a joint petition as long as you are legally married. Filing together can reduce the costs of the bankruptcy and can simplify the process of discharging joint debts. If you wait until after your divorce to file, you will have to each file separately in order to discharge your debts.
Division of Property and Debts
North Carolina is unusual in that the law does not require you to divide your property and debts in the divorce. In fact, you must specifically ask the court to divide your property and debts in the divorce through a special request called a “Petition for Equitable Distribution.” If you do not ask for equitable distribution or you do not reserve the right to do so in your divorce proceeding, you cannot go ask the court afterward to divide your debts and assets. If you have completed a joint bankruptcy before you file for divorce, the court will have far fewer, if any, debts to divide. Likely, will have liquidated or sold some of your assets during the bankruptcy, and you will have less real and personal property to divide.
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