It is important to know that bankruptcy and divorce can actually go together. The catch, however, is knowing which to do first. Knowing what to do can have a major impact on your finances as you move forward. Below are some tips from a highly experienced divorce lawyer on the things you need to consider when deciding whether to file bankruptcy or divorce first.
Divorce and Bankruptcy: How Do They Affect One Another?
Are you ready to file for bankruptcy? Or filing for a divorce is also inevitable? Deciding which to do first is a matter of right timing.
Generally speaking, going through the bankruptcy process should take priority over filing for divorce. If you were to file for bankruptcy while the divorce proceedings were already underway, it would seriously delay things and make it impossible for the divorce to go through. By filing for bankruptcy ahead of the divorce, the distribution of liabilities and assets can successfully be completed without bankruptcy barriers blocking your path.
It is common for some people to get a divorce and file for bankruptcy at the same time. This, unfortunately, is impossible to accomplish because of the fact that bankruptcy has a direct effect on a person’s personal debt, this will also have an effect on the way that debt is handled during the divorce proceedings.
Finally, it is important to know the way that the bankruptcy court will treat your income. Income will be treated differently depending on varying factors that include whether you are divorced, separated, or currently married.
Why Should I File for Bankruptcy First?
If you are still in good terms with your spouse, filing for bankruptcy ahead of divorce mediation is the best potential solution for all parties involved. You can file jointly, and this allows all of your current debt to be addressed as one bankruptcy case.
Why is it the right choice?
Simply put, by filing jointly, you can get rid of all of your joint debts together. The other possibility is that you may even increase your exemption amounts.
If one spouse is considered the breadwinner in the marriage, this is also a helpful solution because it gives that spouse a better chance of qualifying for Chapter 7 bankruptcy.
It is important to qualify for Chapter 7 bankruptcy because it will help you get through the process quickly. In fact, the entire bankruptcy will be over and done within 90 days. By going this route, you and your spouse will have the opportunity to eliminate all of your unsecured debt. Instead of having this huge problem hanging over your head during the divorce proceedings, there will be nothing left to fight over as far as unsecured debt is concerned.
Filing for Chapter 13 bankruptcy, on the other hand, will make both parties responsible for completing a repayment plan. Because of this, further complications during divorce and prevention of the division of assets by sale may occur.
Once the bankruptcy is finished, you can initiate a divorce without any further delay.
Why Should I File for Divorce First?
There are also instances wherein filing for divorce first will make more sense. One situation is when the marital income levels are so high that you will not qualify for Chapter 7 bankruptcy.
As an example, let’s assume that you make less money than your spouse. If this is the case, you personally might be able to qualify for Chapter 7 bankruptcy. In this case, you’ll be able to eliminate all of your debt without filing Chapter 13 bankruptcy. By avoiding Chapter 13 bankruptcy, you also avoid years of paying down old debt via the repayment plan.
As a conclusion, choosing to file for divorce before bankruptcy should be based on your personal situation. In most cases, filing for bankruptcy jointly with your spouse is the best choice for everyone involved.