Bankruptcy & Divorce

Financial problems sometimes cause marital stress. In other cases, marital stress causes financial problems. Either way, a significant number of my clients are either considering divorce or have recently finalized a divorce.

For a couple considering both divorce and bankruptcy, is it better to file a joint bankruptcy before divorcing or each file individual bankruptcies after divorcing? It’s a very fact-specific question.

As long as you are married as of the date of filing the bankruptcy, you can file a joint case. Your divorce can usually be finalized while the bankruptcy is pending without affecting anything.

If much of the debt is owed by both spouses (joint credit cards, medical bills, home mortgage, etc.), I usually recommend a joint filing before divorce. This allows the couple to discharge much of their debt and keep more assets to divide under their marital separation agreement. A single joint filing is also less expensive than two individual filings.

If there is little joint debt, it may make sense to let the divorce run its course and file individually after the divorce is final. There are a number of variables to consider when analyzing this option. Is any debt being assigned to one spouse? Is the debt owed to a government agency or the former spouse? Are you considering filing a Chapter 7 or Chapter 13 bankruptcy? Is the debt in the nature of support or property division? Depending on the answers to these questions, certain debts may be nondischargeable in a future bankruptcy case.

Other considerations include available exemptions, household size, relative incomes between spouses, how well the spouses get along, and child placement/support. If you are going through a divorce and have a significant amount of debt, ask your divorce attorney if bankruptcy should be considered. I’ve worked with many divorce attorneys to decide (1) if bankruptcy would help a couple that is splitting up, and (2) the timing of any bankruptcy filing. If your divorce attorney cannot give you bankruptcy advice, ask for a referral to a local bankruptcy attorney.

Image credit: DrJohnBullas/Flickr

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