What do bankruptcy and divorce have in common?

Question:      What do bankruptcy and divorce have in common?

Answer:         Both can provide a chance for a fresh start.

 

Which should I do first: Divorce or Bankruptcy?  And,

should I file with or without my soon to be ex-spouse?

As with many questions asked of an attorney, the answer is “It depends.”   Bankruptcy and divorce are two separate legal processes that often go hand in hand, but one can have a negative impact on the proceedings of the other.  A complex analysis is often needed to be able to realize all the benefits of a bankruptcy filing.

Financial disputes are a major reason that couples divorce.  Filing for bankruptcy before getting divorced can be a great choice if the parties involved still have good communication. On the flip side, if communications have fallen apart or broken down, then filing bankruptcy together before divorce is likely not an option.

Couples still communicating need to take advantage of every benefit that bankruptcy offers, and that means discussing bankruptcy with an attorney early in the divorce/dissolution process, if not before.   Filing a bankruptcy case in the middle of divorce/dissolution proceedings can disrupt the proceedings and delay the case, and perhaps not serve the interests of either party.

Below are some issues to consider when trying to decide whether to file bankruptcy before or after terminating a marriage, AND whether to file with or without your spouse:

  • Is there one person that makes significantly more money than the other? If the combined income of both parties prevents a chapter 7 filing, then waiting until after the divorce/dissolution may be the better option.
  • Whose name is the dischargeable debt held? If the debt is held primarily by one person, it may not matter when and whether bankruptcy is filed together. It is important to note that if debt is held jointly, the spouse (or ex-spouse) not filing for bankruptcy is still liable on the debt.
  • Is there a marital residence with a joint mortgage? Will one party be retaining that residence in the divorce/dissolution?
  • Will there be support (spousal, child) paid from one party to the other post-divorce? This may impact the timing as support can decrease the income of one party, and increase the income of another, and
  • Are there taxes owed?
  • Can both spouses wait the required amount of time that a bankruptcy filing can take?
  • Married couples can live separately and still file for bankruptcy.

These are just some of the many questions to be answered and issues to be addressed.  Both parties should also remember that:

  • Certain debts generally cannot be eliminated in a chapter 7 bankruptcy case. These include:
    • Alimony(spousal support)
    • Child support
    • Domestic property division obligations
    • Court fines and penalties
    • Fines owed to government agencies
    • Student loans
  • If your attorney feels that you need to file a chapter 13 bankruptcy, then you will have to pay back some of your debts, and the bankruptcy case could go on for 3 to 5 years.
  • Filing divorce does not prevent the other spouse from filing for bankruptcy, and filing for bankruptcy does not prevent the other spouse from filing for divorce

 

Whichever route is chosen, it is essential that it is done in coordination with an experienced bankruptcy and family law attorney.