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What to know if bankruptcy and divorce are both in your future

| Jan 27, 2021 | Personal Bankruptcy

Financial difficulties can put a huge strain of any marriage. And relationship issues can exacerbate financial problems. Therefore, it should come as no surprise that divorce and bankruptcy can easily occur in close proximity to one another.

If you are about to face this difficult reality, you may be wondering how it all works. Should one process come before the other? Do they ever occur at the same time? Should you file bankruptcy as a couple or as individuals?

Each case is unique, so the path you will take should be discussed with your attorney. However, some basic guidance is provided below.

Which legal process should you complete first?

The answer to this question depends on numerous factors, including what kind of bankruptcy you’ll be pursuing and the types of property/debts that would need to be addressed in bankruptcy.

Pursuing bankruptcy first will cut your filing fees in half, because it costs the same to file as a couple as it would for each to file as an individual. If you use the same attorney, you may also save legal fees (but this could create a conflict of interest if you plan to divorce right afterward, so please disclose that information up front). Starting with bankruptcy also makes more sense if you’ll be pursuing Chapter 7 bankruptcy, in which your debts can be discharged in a matter of months. Chapter 13 bankruptcy takes three to five years, so you’d probably want to complete the process as separate individuals.

One thing that many attorneys would agree on is that you shouldn’t try to file for both bankruptcy and divorce at the same time. There are just too many complex calculations being made, and the outcome of one process will undoubtedly influence the other.

Property and debt division

An advantage of filing bankruptcy prior to divorce is that it could eliminate some debt division issues in divorce. If a debt is in both spouses’ names, both are liable for it. If one spouse is ordered to pay it in the divorce decree but defaults on it nonetheless, the other spouse may still be liable for it. Therefore, eliminating the debt first may be safer and easier.

The order of operations will also have an impact on property division. Each state has preset limits on allowable property and asset exemptions in bankruptcy, and those limits may be different depending on whether you are filing jointly or singly. If filing jointly allows for more exemptions (meaning you keep more property), it might make sense to file for bankruptcy first.

Consult with a bankruptcy attorney to get started

As you can see, there are many details that must be considered when deciding whether to file for bankruptcy or divorce first. But much of this information can be made in consultation with a bankruptcy attorney. Therefore, you may wish to start your journey by contacting an experienced bankruptcy attorney in your area.