Divorce usually involves time-consuming, stressful, and sometimes frustrating processes. A bankruptcy filing during this period could even be harder to deal with. If you and your spouse have determined that divorce is the best option and you are looking at possibly filing bankruptcy, carefully evaluating your situation will help determine how soon the case is discharged and how less stressful it will be.

Below are 5 factors that should be considered if a bankruptcy case should be filed jointly or separately before, during, or after divorce.

TYPE OF BANKRUPTCY

• Chapter 7

Chapter 7 bankruptcy means you are liquidating your unsecured debt to pay back your creditors. This eliminates personal loans, credit card debt, and medical bills.

A chapter 7 bankruptcy can be discharged within 3-6 months eliminating both debts of your spouse and yourself ‘before’ a divorce proceeding. 

Note: It is highly recommended to file bankruptcy before divorce because it makes divorce proceedings easier. There is an automatic stay on your assets when you file for either Chapter 7 or chapter 13, which means you or your creditors don’t have access to your assets until the court sorts out the debts you owe and the assets that will compensate for your debts. 

This automatic stay will affect divorce proceedings because divorce includes sharing of assets. Hence the case will be prolonged and delayed than usual. 

• Chapter 13

Also known as reorganization bankruptcy, chapter 13 allows debtors to pay back debts within a scheduled time which usually takes between 3 to 5 years.

Since this includes a longer period to discharge the case, it won’t be realistic to file for bankruptcy ‘before’ divorce. Most persons who choose chapter 13, file separate cases or wait ‘after’ a divorce to file individual bankruptcy.

BANKRUPTCY AND DIVORCE COST

Filing for joint bankruptcy with your spouse reduces the expenses you both will would spend when you file separately when divorced. Hiring separate attorneys, the cost of filing bankruptcy, and for divorce will increase when filed separately.

Instead of spending much time and money on a bankruptcy case individually, it is better to file together as a couple to streamline the process and then save money for the upcoming divorce.

It is helpful to open communications with your spouse about a joint bankruptcy before filing for a divorce.

HOUSEHOLD INCOME

If you do decide to file jointly with your spouse, your combined income will be used to access if you qualify for a chapter 7 bankruptcy or not. If your combined income is higher than the limits on the ‘means test’ (used to access your income to determine your qualification for a chapter 7 bankruptcy) you will not qualify for chapter 7 bankruptcy.

You might be eligible for chapter 7 bankruptcy after you are legally divorced because in this situation your personal income is considered in the means test. 

You will be required to fill a chapter 13 bankruptcy if your household income is higher than the limits of the ‘means test’.

ASSET PROTECTION

Your assets such as land, house, or vehicle could be protected if you file jointly. The law allows you to keep a certain amount of property so that you can get a FRESH START.

Depending on your state you could be given extra protection in the form of double exemptions. 

For example, if your vehicle is valued at $6,500 you could be given a bonus exemption making the vehicle exempt up to $13,000.

If state laws don’t allow you to double your exemptions and you have more property than you can exempt in a joint bankruptcy, it may be more advantageous to file individually after the property has been divided in the divorce. 

MARITAL DEBT

Even after divorce, each ex-spouse is responsible for debts incurred during marriage whether they contributed to the debt or their names are on the credit card or not. That means your creditor can go after an ex-spouse to get full amounts of their debts.

If your ex-spouse doesn’t pay up, this would lead to more court cases between you and your ex-spouse and you may choose to pay the creditor and then wait for your ex-spouse to reimburse you.

To avoid marital debt issues coming after divorce, it will be advantageous to both parties to file bankruptcy before divorce proceedings. 

Conclusion
We understand that you want the best for yourself and your loved one. To save time, energy, and resources, it is advisable to get a compassionate yet professional attorney to provide the required assistance to file your bankruptcy during these emotional and stressful times.

Let Karen, a professional bankruptcy attorney give you the best advice and help you today!
Book an appointment!