How Bankruptcy Can Affect Your Divorce

It is more common than you think for a couple to be considering a divorce and a bankruptcy. The problem is that both processes involve a clear understanding of assets and debts, properties, and a consideration of earning potentials. Some may question whether it is right to file for bankruptcy before or after a divorce. The answer is not as simple, on paper it makes more sense for a couple to file for bankruptcy before a divorce, but if you and your spouse are not in amicable terms it may be complicated to wait out a bankruptcy procedure. In addition, you will also want to consider where you are filing for bankruptcy and you will want to consider what type of bankruptcy will work for your situation. Some of the benefits of filing for bankruptcy before a divorce is that you will share the cost of one attorney, you will increase the value of your exempt property, and you will only have to pay for a bankruptcy once.

A bankruptcy will supersede a divorce proceeding in any case. In theory, a divorce proceeding and a bankruptcy cannot occur at the same time. In other words, if you file a divorce and a bankruptcy at the same time, the bankruptcy proceeding will take place first. However, a couple can choose whether to tackle a divorce or a bankruptcy first. When a couple decides that it is the end of their relationship, it may seem like the easy thing to do is to get everything done in one sitting. Nevertheless, it is a complicated task to accomplish especially in consideration of all the debt and properties that have been accumulated throughout the marriage.

A divorce and bankruptcy procedure should be carefully considered to make sure that both parties are accepting of the outcomes. Couples who take the time to carefully assess their finances, expenses, debts, and incomes will be able to efficiently process their divorce and bankruptcy. When couples end their relationship on bad terms, they will require the attention of a mediator that can help them find a solution to their problems. When a couple requires a mediator or an attorney for both sides, the divorce and bankruptcy process can be prolonged. We think it is best to sit down with your spouse and create a program to handle the bankruptcy and divorce case.

Couples we are considering a bankruptcy and a divorce should decide what process to tackle first. As mentioned earlier, choosing which one to file first will ultimately require a clear understanding of the circumstances. For some, it may be a better option to file for divorce before a bankruptcy and for others, the opposite may be true. In either case, you may want to speak with an attorney who will be capable of providing legal guidance. An attorney can help explain the various laws that may apply to your case. If you would like to speak with an attorney about your bankruptcy and divorce intentions, you may contact the Bankruptcy Attorney at 424-285-5525. We can help you decide which proceeding to handle first and in addition, we will make sure your paperwork is filed correctly the first time to avoid any delays. The following will highlight things to consider if you are planning a divorce and a bankruptcy.

Filing as a couple: Filing for Bankruptcy First

Couples that choose to file for bankruptcy first, may find that is in their best interest if they have a clear understanding of their circumstances. When a couple files a joint-bankruptcy, the couple will need to submit a bankruptcy petition that will contain both spouses financial affairs. A couple may choose to file for bankruptcy first because it is more time efficient. When a joint bankruptcy petition is filed, the dischargeable debt of both parties is wiped out. When you take care of the dischargeable debt through a bankruptcy, it becomes one less thing to worry about when the couple files their divorce. In a divorce, the couples will be required to divide all of their debts and assets. If you are able to discharge your debts before a divorce, it becomes one less factor to consider.

In addition, a joint petition is also more cost-efficient. When you file a joint petition, the couple will only be required to pay the costs of one bankruptcy procedure. The cost of a bankruptcy is not much, in California the costs of a bankruptcy is about $335. The cost may be split with your spouse whereas if you file separately, you will be required to pay the cost on your own and pay for the cost of an attorney. Before you file a bankruptcy before a divorce, you should have a clear understanding of your circumstance. In some cases, it is better to wait until after a divorce in order to qualify for a certain type of bankruptcy. It is crucial to know what type of bankruptcy you will apply for before you engage in a bankruptcy petition. In some cases, individuals may benefit more when filing for bankruptcy as a couple, but it may not be the right solution for everyone. 

Should I file a Chapter 7 before or after a divorce?

Couples that consider a joint petition under Chapter 7 will find that this is the best option for getting rid of debt and proceeding with a divorce. Through a Chapter 7, the couple will be capable of dealing with all of their unsecured debt and may divide any secured debt. For instance, a couple may choose who gets to keep the car and who would have to make payments for the car. Chapter 7 can be processed in a very short amount of time which will allow the couple to proceed with a divorce.

If you are considering a Chapter 7 bankruptcy, you may also have to consider whether you qualify. When a couple files for bankruptcy, they must pass a means test. A means test will assess the households earning potentials and financial affairs before Chapter 7 can be processed. Couples that do not pass the means test may file through a Chapter 13 which allows higher earning households to receive a discharge. However, Chapter 13 takes a much longer time which is why couples usually file a Chapter 13 after they are divorced. If a couple does not qualify for a Chapter 7, they may consider to divorce and then file a Chapter 7.

When a two individuals combine their incomes, they may earn too much money to qualify for a Chapter 7. Upon separating, each party will be capable of using their individual income to take a means test. Single people will have a much easier time accessing a Chapter 7. 

Should I file a Chapter 13 before or after a divorce?

Chapter 13 takes a much longer time than a Chapter 7 which is why if you are considering a Chapter 13, you may want to file for divorce first. There are times when couples cannot work with each other. A divorce can bring out the worst in people and it is difficult to come to a conclusion with someone that does not want to work with you. However, if you are filing a Chapter 13 with your soon to be ex-spouse, you may be capable of keeping your property. If you and your spouse are in working terms, you may want to consider a Chapter 13 so that you may keep your home, vehicle, and other assets.

Things to consider before you file either a bankruptcy or a divorce

The thought of a divorce can be really impactful to a family. In addition, if the family is facing economic stress, it may be hard to think clearly when filing a divorce and bankruptcy. In some cases, a family that is planning to go through a divorce and bankruptcy may not know what to proceed with first. This is a common issue, it is important to understand that every situation is different and it is impossible to prescribe a single solution to every case. Before you file a divorce or bankruptcy first, you will want to consider the following:

File a bankruptcy first or second, but do not file a bankruptcy and a divorce at the same time

A divorce proceeding can be dragged out when a couple decides to file a bankruptcy and then immediately file a divorce. Both legal procedures require an analysis of property, assets, and debts. When you file for bankruptcy and then a divorce, the automatic stay laws will prevent the family court from addressing any property dispute. This means that the divorce case can be dragged out until the bankruptcy is taken care of. For instance, if you file through a Chapter 13 bankruptcy, a lengthy bankruptcy proceeding, you will be required to wait until the debt is settled before you can continue with a divorce. Chapter 13 requires the debtors to reach a repayment program. Reaching a repayment agreement is not always an easy task. A debt repayment agreement may require multiple revisions until the document can be agreed upon by the creditors. If the debtors filed a Chapter 7 they will not have to wait as long before they are allowed to proceed with a divorce.

Learn which chapter will benefit you the most

As mentioned earlier, Chapter 7 is a good way to get the bankruptcy out of the way and then proceed with a divorce. Chapter 7 takes care of all dischargeable debt which means that it may save you some time when you take care of the debt and asset division through a divorce proceeding. However, not everyone wants to file a Chapter 7 and not everyone is capable of filing through a Chapter 7. Unfortunately, if you are not on amicable terms with your spouse, it may be best to file a divorce first and then continue with a Chapter 7 if liquidation is what will serve you best. However, if you and your spouse are in amicable terms meaning you can discuss who will take care of what debt and who will keep what property, you may work with your spouse through a Chapter 13. As mentioned earlier, a Chapter 13 requires that both parties participate to create a debt repayment program. Both parties may be capable of keeping more of their property if they file through Chapter 13 and work together to pay off their debt. In addition, you will also want to consider the cost of an attorney and the cost of a bankruptcy. In some cases, it makes more sense to file a joint bankruptcy since it will help you save on the overall cost of the bankruptcy procedure. 

Every bankruptcy and divorce case is very dynamic. For some individuals, it may be appropriate to file a bankruptcy first before they file a divorce. For others, the opposite may be true. When you are considering which one to file first, you will want to first establish a clear understanding of your economic situation, the number properties you and your spouse own, the types of marital debts, and the type of chapter that you will file through. A divorce and bankruptcy can become very messy if you do not have a clear understanding of your circumstances. You are highly encouraged to speak with an attorney before you proceed with either case. Speaking with an attorney will help you decide the most appropriate route for your case.

If you are in the state of California, you will be required to work with the local bankruptcy laws. In some states, individuals that are filing for bankruptcy have the opportunity to apply for federal exemptions. However, in California debtors are required to work with local bankruptcy laws. If you are considering a bankruptcy, it is advised to speak with a local attorney. A local attorney will help you decide whether you should file a bankruptcy before or after you file for divorce. Every bankruptcy and divorce case holds a variety of factors so it is important to have a law professional guide you through your case. To speak with a Bankruptcy Attorney you may contact our office at 424-285-5525.