Bankruptcy & Divorce are two of life’s most difficult challenges. They often occur together as financial stress might lead to divorce and divorce itself might cause financial problems. As a result, you may be thinking about filing for both bankruptcy and divorce and don’t know what to do first.
This blog will outline 5 of the factors you should consider when deciding which to file first: bankruptcy or divorce. You should also speak to a family lawyer before making a final decision about how to proceed.
Consideration 1: The Type of Bankruptcy You Want to File
Whether you want to file Chapter 7 or Chapter 13 Bankruptcy is one of the main factors to consider in deciding whether to file before or after your divorce.
Chapter 7 Bankruptcy
If you will be filing a Chapter 7 Bankruptcy, your best option might be to file before your divorce.
A Chapter 7 Bankruptcy is a liquidation bankruptcy which eliminates your unsecured debt such as credit cards, personal loans, and medical bills. A Chapter 7 bankruptcy can be filed and completed with a discharge (elimination) of the debt in about 3 to 6 months. It therefore may be possible to wait to file for divorce until the Chapter 7 is over. You might also be able to file with your spouse, eliminating both of your debts and thereby simplifying the divorce proceeding.
Chapter 13 Bankruptcy
If you will be filing a Chapter 13 bankruptcy your best option might be to file after your divorce.
A Chapter 13 Bankruptcy involves a plan to repay some or all of your debts and lasts 3 to 5 years. This long time period makes it unrealistic for most couples to complete a Chapter 13 bankruptcy before filing for divorce.
If you file for divorce during the Chapter 13 Bankruptcy you will need to have the bankruptcy case separated into 2 cases or closed once you officially end the marriage.
Consideration 2: Household Income-Will Your Divorce Make It Easier to Qualify for Chapter 7?
Your household income (the income of both spouses) is another important fact to consider when deciding whether to first file bankruptcy or divorce. It is possible that your income while you are married may be too high to qualify for a Chapter 7 bankruptcy.
To qualify to file a Chapter 7 bankruptcy, you must take and pass the “means test.” If you are married and living together with your spouse both incomes must be used to determine if you pass. This is true whether or not you file bankruptcy together. If your household income is too high, you will be required to file a Chapter 13 bankruptcy.
You might become eligible to file Chapter 7 once you are legally separated or divorced and only your income is considered in the means test. In that situation, you might want to wait until after you are separated or divorced and file your own Chapter 7 bankruptcy.
Consideration 3: Protecting your Property
When you file a bankruptcy case, the law allows you to keep a certain amount of property so that you can get a Fresh Start. Bankruptcy exemptions determine the type and dollar amount of assets that the law allows you to keep.
If you file jointly with your spouse, you can each claim a full set of exemptions which can help you protect your assets. If you own a lot of property it might be better to file a joint bankruptcy with your spouse before you file for divorce.
An experienced bankruptcy attorney can help you determine how to best protect your assets. This is especially important if you jointly own property with your spouse, such as a house or a car that has equity. A married couple might be able to protect more property than one or the other filing separately could do.
Consideration 4: The Cost of Filing One Joint Bankruptcy vs. Two Individual Bankruptcies
It is less expensive for a married couple to file a bankruptcy jointly before divorce than to file 2 separate bankruptcies after divorce. Bankruptcy filing fees are the same for joint and individual filings. Currently the filing fees for a Chapter 7 bankruptcy is $335.00 and for a Chapter 13 bankruptcy is $331.00. It is usually less expensive to pay an attorney to file one joint bankruptcy than if each spouse hires a separate lawyer and files a separate bankruptcy case.
If you are on amicable terms with your spouse, then filing jointly for bankruptcy before a divorce could be a viable option. Attempting to file with a spouse who is hostile to your financial interest, or who you may think is hiding assets could be a mistake.
Consideration 5: The Possibility that Filing Jointly Could Simplify the Divorce
In a divorce the assets and debt must be allocated and resolved. By filing for bankruptcy first with your spouse, you can eliminate most, if not all, of your credit card debt, personal loans, and other unsecured debt. This will help simplify the divorce process thereby saving you time and money in the divorce. Additionally, if you eliminate the debt, there will be more money to live on which will be helpful now that you have to support 2 households.
If your file for divorce first, and in the middle of the divorce, one of the spouse’s files bankruptcy, the divorce will be delayed.
We Can Help: Contact Our Experienced Bankruptcy Lawyers:
Both divorce & bankruptcy are both very emotionally difficult situations to deal with. We are here to help. Our experienced and compassionate attorneys at Levitt & Slafkes, P.C. can walk you through deciding whether to file bankruptcy or divorce first.
To schedule a free consultation call us at 973-323-2953, or contact us online.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.