If you are considering divorce and bankruptcy all at once, you’re probably wondering which process comes first. It is fairly common for a bankruptcy proceeding to follow a divorce, but this is typically not by choice. Divorce is often cited as a leading cause of bankruptcy.
Many couples facing divorce also face an insurmountable amount of debt obligations. While it is common for divorce to take the lead, it is recommended by experts to file for bankruptcy first. However, whether or not you file before or after will depend upon several variables and factors.
Some of these variables you’ll want to take into consideration, preferably with the assistance of an attorney, include the amount of debt owed, the amount of debt you expect to owe following the divorce, the amount of property you own, and which type of bankruptcy Chapter you qualify to file under. One idea to consider when you’re thinking about filing for both is to file for divorce and bankruptcy at the same time.
The Allocation of Debt
When a couple makes the decision to divorce, if the couple shares a massive amount of debt, it’s best to resolve the debt through bankruptcy before divorce. By eliminating the debt beforehand, the couple will not have to worry about stressful scenarios that may take place later.
For example, if the couple allocates the debt during the divorce proceedings and one party files for bankruptcy following the divorce, the other party may then be responsible for the entire debt obligation.
The party left with the debt obligation could then pursue legal action of the ex-spouse in court as it was established during the divorce that he or she was legally responsible for part of the debt during the allocation of debt. However, due to the fact that this is a lengthy and stressful process, it’s best to just address the issue prior to divorce.
The Division of Property
Whether to divide property before or after bankruptcy depends upon the state you reside in. One state may allow a couple to qualify for several property protection exemptions if they file for bankruptcy together, whereas another state may not. An attorney can better advise you as to which avenue would be more advantageous to pursue.
Joint Filing vs Individual Filing
By filing jointly, you’ll save an immense amount of money on court fees and attorney fees. But before you move forward with a bankruptcy attorney, make sure to let the attorney know if you and your spouse plan on filing jointly that you’re also facing divorce proceedings. It is possible that this may become a conflict of interest for the attorney. Other ways to save by filing jointly includes with the settlement of property division and debt allocation.
One More Thing to Consider – Chapter 7 or Chapter 13?
Before considering a joint bankruptcy filing, you’ll want to take this into consideration. If you’re interested in filing for Chapter 7, with a doubled, combined income through a joint bankruptcy application, it is possible that you may not qualify for this chapter type.
When comparing the two, remember that Chapter 7 may completely absolve your debt whereas, with Chapter 13, you’re legally obligated for on average 3-5 years to repay a portion of the debt through an installment plan that you can afford. So if you’re more interested in filing a Chapter 13, you may also wish to file after divorce for this reason alone.
When you’re unsure, speaking with an attorney who specializes in divorce and/or bankruptcy can help you determine whether it’s best to file for bankruptcy before the divorce or after. The final decision depends upon your personal, unique circumstances and those of your spouse. The only way to know for sure is to request a private consultation with an attorney to discuss your options.