Filing for Bankruptcy During a Divorce

Filing for bankruptcy during a divorce is a stressful situation made even worse when you have to do both at the same time! It’s crucial to understand how these processes will affect each other now and in the future. Here are some frequently asked questions about this situation and suggested solutions:

Should I file for bankruptcy before or after my divorce?

It is more beneficial to file for bankruptcy first. The initial fees are identical if you file for joint or individual bankruptcy, but in the long run you can save time and money in court fees by filing together rather than separately. Also, filing for bankruptcy beforehand may reduce some divorce costs. However, you have to take into consideration how well you and your spouse will work together during the bankruptcy proceedings if you are undergoing an emotional split.

Which type of bankruptcy should I choose?

Whether you choose Chapter 7 or Chapter 13 bankruptcy depends on your financial situation, and your marital status can affect eligibility for one or the other.

Chapter 7 bankruptcy discharges unsecured debts (debts that have no collateral, such as credit cards and medical bills). The removal of such debts can be accomplished within a matter of months. However, if you file for Chapter 7 before your divorce, it’s possible that your combined finances might put you over the line for eligibility. If this is a problem, it would be best to file Chapter 7 after your divorce so your ex-spouse’s income does not affect the process.

Chapter 13 bankruptcy differs greatly from Chapter 7. It takes longer to complete (between 3-5 years), and you are expected to adhere to a plan of repayment instead of having the majority of debt discharged. For these reasons, you should wait until after your divorce is complete before initiating Chapter 13 bankruptcy since the divorce would (hopefully!) be long over before the repayment plan is complete.

How are our debts and properties handled in married versus single households?

Each state has different rules governing which properties can be exempted during bankruptcy. Some areas may allow you to double your exemptions when filing for joint bankruptcy. However, if you don’t have enough property that qualifies for exemption, filing separately would probably be the better option.

As long as you are not at each other’s throats, it can be easier to pay off debts together rather than individually. It takes time in court to allocate debts to each spouse. Also, creditors may still consider both of you accountable for the debt even after the divorce goes through. For example, if you have a joint credit card with accrued debt that is allocated to your spouse during the divorce, the credit card company will nevertheless consider you responsible if that person does not handle it.

If you are still confused about how your bankruptcy and divorce will affect each other, call us at Hathaway Law today. We would be happy to help you navigate the confusing paperwork and other issues that arise during these stressful procedures.