Because people going through divorce are under financial stress, it’s not unusual for one of the parties to file for bankruptcy protection. Filing for bankruptcy during divorce can also provide significant strategic advantages to the party filing for relief. We have used bankruptcy to bring to a conclusion difficult divorce cases that have dragged on for months or even years in the divorce courts. Our lawyers also represent the rights of the non-debtor when a spouse files bankruptcy during divorce and have been engaged by divorce attorneys to collect the fees and costs they have been awarded by a divorce court judge. While the laws surrounding divorce and bankruptcy can be complex, we can help. If you are contemplating filing for both bankruptcy and divorce, then timing can be critical.
How Can Divorce and Bankruptcy Affect Each Other?
First, you cannot do both at the same time. First, bankruptcy courts determine income depending upon your marital status at the time the case is filed. If you file for bankruptcy during your divorce, it may delay the distribution of assets and liabilities until after your bankruptcy proceedings have been completed; this will in turn impact how these are treated in your divorce.
Should We File for Bankruptcy First?
If you and your spouse are at a place where you can agree on it, then consider filing for bankruptcy first. By filing jointly, all your marital debts will be addressed under a single bankruptcy case. In this way, your joint debts can be wiped out and you may be able to increase your exemption amounts. This is also helpful if only one spouse makes the money since it will increase the chances of qualifying for a Chapter 7 bankruptcy for that spouse. Bankruptcy will also help you eliminate those contracts that neither one of you wants or is unable to keep, such as high car loans or mortgages that are underwater.
If you qualify for a Chapter 7 bankruptcy, the process should be complete in about 90 days. Therefore, you and your spouse can eliminate those unsecured debts and remove any conflict over them. If, however, you file for Chapter 13 bankruptcy, be aware that both you and your spouse will be responsible for the repayment plan and may also be prevented from dividing assets by sale. Once the bankruptcy is completed, divorce proceedings will continue without any further delay from bankruptcy.
Should We File for Divorce First?
If your joint income is too high to qualify for Chapter 7 bankruptcy, then filing for divorce first might make more sense for you and your spouse. For example, if you make significantly less than your spouse you (or both of you) may be able to qualify for Chapter 7 without a Chapter 13 payment plan.
Proper planning in a divorce is key. Call our office today at (866) 572-2423 and let us help you make the decision that is right for you.