How to handle divorce and bankruptcy intelligently

On Behalf of | Jul 31, 2018 | Firm News |

Financial difficulties can sometimes contribute to the decision to divorce. When this is the case, bankruptcy might be on the horizon. People who are going to divorce and might need to file for bankruptcy will have to determine which one to do first.

It isn’t a good idea to file bankruptcy and for divorce at the same time. There are elements to each that might stall the other case. For example, the automatic stay of bankruptcy freezes assets so those assets can’t be divided during the divorce in the same way they would without the bankruptcy. Here are some considerations that will help you handle this conundrum:

Which type of bankruptcy do you need?

Typically, a Chapter 7 bankruptcy is faster than Chapter 13. No regular payments are required for a Chapter 7, but you do have to make payments on a set schedule in a Chapter 13.

If you need to be divorced quickly but have pressing debts, a Chapter 7 bankruptcy can likely be done first if you qualify. Since this type only takes a few months on average, you won’t have to delay your divorce for long. Once the bankruptcy is discharged, you can proceed with the divorce without having to worry about debts that were included in the case.

A Chapter 13 bankruptcy lasts years, so you shouldn’t try to get this done first unless you know that you can withstand remaining married for the duration of the case. This might be challenging, so you may decide that you need to divorce before filing for bankruptcy.

What happens if bankruptcy is first?

If you file for bankruptcy first, you won’t have to worry about dividing the debts when you are going through property division. These debts will all be discharged and you and your spouse will both be able to help cover the cost of the bankruptcy case.

What happens if divorce is first?

If you do file for divorce first, there is a chance that one spouse will be saddled with the debt of joint accounts. During the property division process, debts are divided. The issue that creeps up if one spouse files for bankruptcy is that creditors don’t have to abide by the terms of the divorce since they weren’t a party to it. This means that they can hold you liable as a co-owner of the account if your ex files for bankruptcy. His or her responsibility would be relieved but yours would stand unless you file, too.

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