Financial problems often go hand in hand with other marital issues. The stress of unmanageable debt on top of relationship problems can push some couples over the top. When both marital and financial issues reach crisis levels, a couple or an individual spouse may consider whether bankruptcy should be on the table in addition to ending the marriage.

Even if the couple was scraping by, the costs associated with two separate households after divorce could become unmanageable.

One thing is certain: get legal advice if you are in this situation to understand your options and the pros and cons of whether to file for bankruptcy and, if so, what the timing should be vis-à-vis the divorce proceeding. There can be distinct disadvantages or advantages to filing one before the other, depending on the family circumstances.

The interaction between state divorce law, federal bankruptcy law and to some extent tax law is extremely complex and requires analysis by an experienced attorney.

Broadly, individuals and married couples normally file either Chapter 7 bankruptcy in which assets are liquidated (except exempt property) to pay down debts, after which most that remain are discharged, or Chapter 13 in which debts are consolidated and a repayment plan created, after which some remaining debts may be discharged.

Some of the factors that could impact the decision whether and when to file as well as which type include:

  • Whether filing jointly while married would be advantageous to either or both filing separately after divorce
  • Court and legal cost differences between filing one bankruptcy versus two
  • If Chapter 7 is preferred, whether the couple’s joint incomes are too high to qualify, but alone one or both would qualify
  • What debts and assets are held jointly versus solely by one spouse
  • The incomes and assets of the parties, what debt would or could be assigned to each of them in the divorce and whether they could pay it.

This is only a broad introduction to a complex topic to be revisited in future posts.