Which Came First: the Bankruptcy or the Divorce?

If an individual is planning on filing for bankruptcy during a divorce, he or she may be wondering if it’s better to file before or after, but either can be appropriate depending on the circumstances. Specifically, the right time to file for bankruptcy will depend on the number of assets involved, the amount of debt that’s owed, where the individual lives, and the type of bankruptcy.

The following are some items to consider when filing for bankruptcy during a divorce.

When Filing Together Makes Sense

Some divorcing couples will choose to file together via a joint petition that includes both spouses’ financial details. The reason for doing this is to help the bankruptcy process go smoother. Filing together can help ensure the bankruptcy discharges or eliminates both spouses’ qualifying debt, which helps simplify the court process. It also costs less to file together than it does to file individually.

While many couples may choose to file together, it isn’t mandatory. Sometimes it might be best to file separately if one spouse wants immediate bankruptcy protection, or a decrease in household income between both spouses may also make it easier to file after completing the divorce process.

Chapter 7 or Chapter 13?

Individuals may also want to consider whether to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Chapter 7 bankruptcy can help eliminate unsecured debts when dividing debt in a divorce, including medical expenses and credit card debt. It’s also usually completed within a few months of filing.

Another factor to consider with Chapter 7 is whether the individual maintains a single household. If couples want to file together, they will need to include their combined income, in which case they may not be able to qualify if their combined income level is too high.

Conversely, Chapter 13 bankruptcy entails a repayment plan that can make the process take three to five years to complete. If individuals plan to file for Chapter 13 bankruptcy, it’s often best to wait until after the divorce due to the amount of time it takes to receive a discharge.

The Cost of Filing

It’s also important to keep in mind that filing fees for bankruptcy will be the same regardless of whether couples or individuals file. As a result, it’s often ideal to file together prior to divorce to help save more on legal fees. It may also help cut down on the costs of hiring a bankruptcy attorney, provided the attorney is willing to represent both spouses despite planning a divorce.

Deciding on the Division of Property

Joint petitions can make property division more efficient, but couples need to make sure that there are exemptions in place to secure the property that both spouses own. In some cases, it may be better to file jointly if the state enables couples to double their exemptions. However, it’s important for individuals to be aware that the property division process will be temporarily paused until the bankruptcy process completes.

Keeping these aspects in mind can help spouses decide whether filing for bankruptcy together before a divorce or separately afterward is best.