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<xTITLE>Divorce & Bankruptcy: Which Comes First?</xTITLE>

Divorce & Bankruptcy: Which Comes First?

by Jim Hughes
July 2019 Jim Hughes
Divorce can be a very challenging time for anyone especially when it is coupled with financial difficulties. It is not uncommon for divorcees to file bankruptcy at the same time. But the question is – which comes first? And does it even matter? 

Sometimes, filing bankruptcy before a divorce is a good idea. In some cases, it is not. There are several factors that need to be considered. It depends on where you live, how much debt you have, and what type of bankruptcy you wish to file.

Below are the important factors to consider when deciding which to file first.

Type of bankruptcy you wish to file

A major factor that should help you decide whether to file bankruptcy first before a divorce is the type of bankruptcy you are filing. If you are filing for a Chapter 7 bankruptcy, you can do it prior to your divorce as the entire process can be completed in several months. You also have an option to file jointly. Many divorcing couples file jointly because it can discharge the qualifying debt of both spouses, which means they have one less problem to deal with during the divorce. Also, filing jointly costs lower than filing it apart. 

Your assets 

Another thing to consider is your assets. If you and your spouse jointly own a property, filing a joint bankruptcy can give you extra protection in the form of double exemptions. For example, if your home is exempt up to $50,000 in a single bankruptcy, you could get up to $100,000 for a double exemption. Also, if bankruptcy precedes divorce, it can delay the distribution of assets and liabilities until the bankruptcy is completed. Additionally, bankruptcy debts are tied to an individual’s name or social security number and can affect how debts are treated after a divorce.

Your income

If your joint income is too high to qualify for Chapter 7 bankruptcy, filing a divorce first is a better idea. Chapter 7 income limits are based on household size. However, if your income is less than what your spouse makes then you can go ahead with bankruptcy. If you and your spouse will file jointly, you can save money on attorney’s fees and filing costs. Still, the fact remains that all the legal work has a corresponding price and it can be difficult to get started when you are already in a deep financial mess.

Your situation

If you and your spouse are still in good terms, you may choose to file for bankruptcy before a divorce. However, if there is no chance that you can have good and open communication, it’s better to do it the other way around. Take note that if you’re filing jointly, you will have to work closely with your spouse and ask him/her to show up to court during the proceedings. When deciding whether to file a divorce or bankruptcy first, consider the status of your relationship with your spouse.

Your marital debts

Determining who is responsible for paying debts incurred during the marriage is a costly and time-consuming process. It’s important to remember that ordering one spouse to pay a certain debt does not eliminate the other spouse’s obligation towards that debt. That means if your spouse incurred a debt on your joint credit card, and was ordered by the court to repay the loan, you are still on the hook in case your ex-spouse does not do his obligations or does not file for bankruptcy. To resolve marital debts, filing for a Chapter 7 bankruptcy prior divorce is beneficial.

Recovering from bankruptcy after a divorce can be difficult. Good thing, substantial awards or spousal support helps the receiving spouse become financially independent after a divorce. In calculating substantial awards, there are many factors that courts consider, such as the spouses’ income and property, length of the marriage, current and future earning capacity of both parties, and tax consequences to each spouse. Some common ways of calculating maintenance award are to take up to 40% of the net income of the paying spouse, less 50% of the net income of the supported spouse.

Divorce and bankruptcy go hand in hand. And in most cases, it is more beneficial to file for bankruptcy before a divorce to ensure that all assets and debts are taken care first and avoid potential issues concerning property division and marital debts. Additionally, divorce proceedings usually take longer than bankruptcy so it is not only convenient but also beneficial to file for bankruptcy first.

Nonetheless, every person’s situation is different and there are instances when filing a divorce first is a better option. It is always advisable to consult an attorney to know your options.

Biography


Jim Hughes is the Head of the Marketing Department at LoanStart.com. He is a content marketer who has significant experience covering technology, finance, economics, and business topics for about 3 years. He likes to share all the insight and knowledge he has.



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