One of the top reasons that people file for bankruptcy is that they have gone through a divorce. But sometimes it makes better financial sense to file for bankruptcy before getting the divorce, while in other cases, it is better to hold off on the bankruptcy until the divorce is finalized. How well you handle the first process will affect the other. Keep reading to learn more about your bankruptcy and your divorce can interact.
Some of the factors you will have to consider when deciding when to file for bankruptcy include how much you have in assets and property, and how much debt you have accrued. The type of bankruptcy you need is also going to factor in as well. Another thing to consider is that it costs the same to file for bankruptcy individually as it does to file jointly. This means that if both you and your spouse are going to have to file for bankruptcy, it can save you money to file together. And once you have together wiped out the debt that you can, the division of assets and debt can be that much simpler in your divorce, thus saving you time and money in that process as well.
How would the type of bankruptcy affect this process as well as your divorce? Well, if you file for Chapter 7 bankruptcy, this should discharge your unsecured debts, such as debt from your credit card or medical bills. The whole process lasts only a few months. What that means is that you can quickly eliminate much of your debt before you ever fill out the divorce papers. On the other hand, if you need Chapter 13 bankruptcy, this will go on for three to five years, as this bankruptcy restructures your debt so that you can pay most if not all of it off in that amount of time. In this case, filing for the divorce first makes sense, and you would simply have to file for this bankruptcy individually once the divorce is finalized.
State laws are another issue that you will have to look into. While in general, filing for bankruptcy can ease the difficulty of dividing property in your divorce, you have to be sure that your marital property will be protected, or exempt from the bankruptcy. In some states, you can double up on your exemptions if you file jointly. If you have a lot of property that you need to protect, filing jointly for bankruptcy can help you claim more exemptions and protect your property. In states where you cannot double your exemptions, then you might be able to protect more property through individually filing for bankruptcy, after the divorce, after the property division. Now if you file for bankruptcy while your divorce is pending, then the bankruptcy's automatic stay will freeze property division until you have finished bankruptcy.
Then of course, there is the division of debt in divorce, something that is very much influenced by bankruptcy proceedings. It often makes sense to discharge your debts as a couple before you split. Otherwise, even if a divorce court orders your spouse to pay some of your debt, creditors can still come after you if he or she fails to pay up. While you have the option of going after your ex to reimburse you, regardless of whether or not they filed for bankruptcy, using the time and money to enforce the divorce decree can be costly. It may be best to take care of the debt before you address the divorce.
Finally, we must return to Chapter 7 bankruptcy and its income qualification. To file jointly for Chapter 7, you have to combine your income. You might not be able to pass the means test if the joint income is too much, thus making you both ineligible for this bankruptcy. It is possible to be disqualified if you combine your income, even if each of your incomes on their own would qualify. If this is your situation, then you might have to get the divorce first.
Evidently, this is not a simple decision, and this is a choice for which you may need the counsel of financial and legal experts. If, however, it is certain that you will have to file for bankruptcy, then whenever you have decided is the right time to file, you will certainly need the guidance of an experienced bankruptcy attorney. You can find the legal assistance you need for a stronger and independent financial future on our directory today.