Bankruptcy and Divorce – When to File?
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Typically it is better to wait until after a Divorce is final before filing for Bankruptcy. The reasons this is better are
- Wait for assets to be divided;
- Wait for debts to be divided;
- Start completely fresh after the divorce.
- Filing during a divorce will stop the divorce proceedings.
- Filing before or during a divorce may make the bankruptcy contentious.
Why may you need to File for Bankruptcy?
There are many reasons why a person may need to file bankruptcy. The most common causes of financial problems that lead to a bankruptcy are:
- Unemployment or reduction in income
- Medical bills
- Death of a spouse
- Failed business
- Unwise money management
Some people are surprised to hear that divorce is a common cause for filing bankruptcy; however, bankruptcy and divorce often go hand in hand for several reasons.
When a couple decides to end their marriage, the parties go from supporting one household to supporting two households. For many couples, the loss of income from the other spouse is devastating. It can be very difficult if not impossible to pay living expenses and debts on one income when you are accustomed to having two incomes. If one spouse must pay child support or alimony, this can severely limit the amount of disposable income available each month to pay debts. In some cases, a person may need to file bankruptcy after a divorce because the costs of the divorce created a financial hardship that the person cannot recover from without assistance.
Filing before divorce
Only married couples can file a joint bankruptcy case. It’s cheaper for a couple to file a joint bankruptcy case than for them to file two individual bankruptcy cases. Rather than paying two attorney’s fees, two filing fees, and two fees for credit counseling and debtor education courses, the couple can save money by filing a joint bankruptcy petition before filing for divorce.
Having more people in your household makes it easier to pass the means test if you are worried about income qualification. For instance, if only one spouse works, that spouse may not qualify for Bankruptcy in a household of one after a divorce is finalized vs. a household of four prior to the divorce.
Another advantage of filing a bankruptcy case before the divorce is to eliminate joint debt that the couple would need to address in their divorce case. By cleaning up debt problems prior to filing the divorce case, it can make the divorce quicker and easier because the division of debt is not an issue. Obviously, if the parties can work together through their divorce attorneys and a bankruptcy attorney, it could benefit the parties to file a joint bankruptcy case prior to filing for divorce.
Filing after Divorce
If the divorce petition has already been filed, then it’s often better to wait until it’s finalized before moving into a Bankruptcy. A bankruptcy filed during a divorce proceeding often throws a wrench in the proceedings and may make the situation unnecessarily complicated. However, this decision depends on the specific facts of your case. Each spouse would file a separate bankruptcy petition with separate attorneys provided they qualify for Bankruptcy.
Domestic Support Obligations
Filing bankruptcy does not discharge domestic support obligations. If the court orders you to pay alimony and/or child support, a bankruptcy filing will not discharge this obligation. However, if you fall behind on domestic support obligations, you may be able to file a Chapter 13 case to catch up the past due payments and avoid going to jail for delinquent support payments. If you are behind on your domestic support obligations, it is in your best interest to discuss this matter with one of our bankruptcy attorneys as soon as possible.
Contact an Experienced Bankruptcy Attorney
If you are facing a divorce and you are struggling with debt, contact Weston Legal, PLLC at 1-800-220-4318 to discuss your bankruptcy options. Each person’s situation is different and each divorce case is unique. Our attorneys review the circumstances of your situation to develop a plan that is best for you.