Bankruptcy and Divorce

Bankruptcy and Divorce can both be very difficult and stressful times for the parties involved. Depending on the debt involved and the circumstances, it may be better to file a bankruptcy prior to divorce. However, sometimes it is best that the divorce happen prior to the bankruptcy. The order of these events certainly changes the options that are available. For example, if a separated coupe chooses to file bankruptcy prior to a divorce they may choose to file a joint petition. A joint petition can be filed where the two parties are still legally married regardless of whether there is a divorce in the future.

                While you may be wondering why a couple whom is planning to get divorced would want to file a bankruptcy together but often times it makes perfect sense. One joint bankruptcy means one set of court costs, one set of attorney fees, etc. A joint bankruptcy prior to divorce also resolves many of the issues that may arise in a divorce which ultimately can lower the attorney fees required in the divorce. If the bankruptcy wipes out all of the unsecured debt, then there is typically a lot less to settle and assign out in the divorce. Getting rid of the debt prior to the divorce can allow both parties to move on from the bankruptcy and the divorce with a true fresh start.

                The flipside is that there are times when it is not recommended to file a joint bankruptcy where there is a looming divorce. The first reason is where the Debtors joint incomes but Debtors over the eligibility of a Chapter 7. If Debtors are separated then the one parties income does not have to be listed on the other parties’ bankruptcy. However, where the Debtors are filing a joint bankruptcy, their incomes joined together must put them under the limits to file a Chapter 7. Another reason not to file a joint bankruptcy when a divorce is looming is if the type of bankruptcy that would be required is a Chapter 13. Is it possible? Sure. However we do not typically recommend it. A Chapter 13 can be anywhere from 36-60 months. Given the extensive time parties often do not plan to or do not want to have to depend on the spouse or soon to be ex-spouse to hold up their end of the bargain as far as making plan payments and following all of the requirements of a Chapter 13.