Juggling Bankruptcy and Divorce – A Crash Course

If you are unsure whether you should file for divorce or bankruptcy first, then it is recommended that you read this article. The majority of people will consider divorce as the leading cause for a case of bankruptcy; however, this is not always the situation. It is seen that by planning ahead you could make both divorce and bankruptcy a less complicated and more cost-effective issue.

The issue of whether you claim bankruptcy before or after the divorce is dependent mostly on your place of residence, how much debt and property you have, and the type of bankruptcy being filed. Read on to discover what considerations need to be made when choosing whether to file for bankruptcy or divorce first.

Bankruptcy And Divorce Costs

It should be mentioned that, contrary to popular belief, bankruptcy filing fees are identical for both individual and joint cases. This means that filing a joint bankruptcy with your spouse before considering divorce can result in saving on court fees. Furthermore, if you decide to use the services of a bankruptcy attorney the legal fees will be a great deal lower for joint bankruptcy files than if each individual filed separately. Of course, you should allow the bankruptcy lawyer to know about an upcoming divorce as there may be a conflict of interest for him or her if representing both parties.

Filing for bankruptcy before filing for divorce is also beneficial in simplifying the issues regarding property division and debt. This means that it will reduce the cost of the divorce as an overall result.

Chapter 7 Vs. Chapter 13 Bankruptcy

The Chapter 7 article refers to a liquidation bankruptcy case designed to remove any unsecured debts such as medical bills and credit card debts. In the Chapter 7 article, it is possible to receive a discharge after a few months; therefore, it can be completed speedily following a divorce.

Contrary to Chapter 7, the Chapter 13 article indicates a bankruptcy filing lasting from three to five years due to a requirement of debt repayment using a debt repayment plan. If you are interested in filing a Chapter 13 bankruptcy, it may be beneficial to file individual after the divorce case as it can take a long time to complete.

Division Of Property

The removal of debt jointly via bankruptcy results in a simplification of the property division procedure as part of a divorce. Of course, before filing a case of joint bankruptcy you must determine whether or not the state allows exemptions for the protection of the property between you and your spouse. It is important to note that certain states allow individuals double exemption of the amounts of property division files that can be jointly made. So if you own many properties, it may be best to file a joint bankruptcy, and this can double the exemptions.

If it is not possible to double the exemptions and you have more property than can be exempted in a joint bankruptcy, it may be beneficial to file individually after the properties have been divided in the divorce. Furthermore, if bankruptcy has been filed while a divorce is ongoing, there will be a hold placed automatically on the property division procedure until the bankruptcy case is completed.

Allocation Of Debt

Litigating which debts will be assigned to each party in a divorce settlement can be a costly and time-consuming procedure. In addition, by ordering a single spouse to pay a certain debt one will not alter the other spouse’s financial obligations toward the creditor.

For example, let us say an ex-husband is ordered as part of the divorce settlement to repay a joint credit card and if he does not make payment or files for bankruptcy you will still face debt to the creditor. If you end up paying the debt, your ex-husband will have violated the settlement of the divorce and you have the right to reimbursement. This right is retained regardless of whether or not he files for bankruptcy as he can discharge the obligation to pay a creditor but not his obligation to repay you according to the divorce settlement.

Of course, the collection of repayment fees from an ex-spouse can result in spending more money pursuing the party in court. This being the case, it may be more beneficial for both parties to file for bankruptcy and clear any combined debts before filing for divorce.

Income Qualifications For Chapter 7

If there is an intention to file a Chapter 7 bankruptcy before or after a divorce, the choice of when to file may be dependent on the income maintained in a single household. When filing jointly, it is necessary to include the combined income in the bankruptcy documentation. If the joint income presents as too high, it may not be possible to qualify for a Chapter 7 bankruptcy.