There are special considerations when filing for divorce and bankruptcy at the same time. Which should you do first? Should you do them at the same time? Learn more in this guide.
There is no doubt that sharing your life with another person can create challenges, especially when it relates to money. Some 48% of people who are married or living with a partner say they argue about money. Moreover, 60% of people have issues with how their partner handles money, either spending too much or being too cheap.
It’s no surprise that one of the biggest issues that lead couples to divorce is money. And if the money troubles and marital issues run simultaneously, a couple may be facing both divorce and bankruptcy at the same time.
Divorce and bankruptcy are two of the biggest stressors a person can face. Imagine the challenges of potentially do both at the same time. Is it even wise to consider doing both divorce and bankruptcy together?
Read on to learn more about the process of divorce and bankruptcy and how to best approach each.
Types of Bankruptcy
There are two common types of bankruptcy to consider. In order to know how to approach both your divorce and bankruptcy, you need to better understand bankruptcy options.
Chapter 7 bankruptcy is likely the most common type of bankruptcy. In this form of bankruptcy, the filing party eliminates debt by liquidating assets.
This might mean you sell valuable assets like property, car, or jewelry to pay off debts.
Amid divorce proceedings, Chapter 7 bankruptcy can be complicated. You can’t very well divide up assets for the divorce if you know they are going to be liquidated in a bankruptcy hearing. In this scenario, it makes sense to handle the bankruptcy prior to the divorce.
Chapter 13 bankruptcy, the other most common type of bankruptcy, involves dividing up debts and repaying them over a span of several years. If you’re going through divorce and opt for Chapter 13 bankruptcy, each party could be assigned debts to pay off over the years ahead.
In this model, you can do divorce and bankruptcy at the same time, yet your finances are still tied to your former spouse until the bankruptcy is resolved. It doesn’t provide the clean break that many couples seek in divorce.
Problems Related to Filing for Divorce and Bankruptcy at the Same Time
If you and your spouse have made the decision to move forward with both divorce and bankruptcy, it’s time to talk with your attorney about how to proceed.
There are many complicated laws related to bankruptcy and relieving debt and they vary from state to state.
Filing for bankruptcy puts a stay on debtors continuing to collect their debts while the bankruptcy is worked out. This can feel like a big relief if you have been facing overwhelming debt and the hassles of debt collectors.
Once that stay is in place, it can make it complicated to move forward with the divorce. Many courts will require bankruptcy proceedings to be finalized before moving forward with the divorce.
This is when you need a good attorney who is well versed in both divorce and bankruptcy.
Bankruptcy Before Divorce
For many couples, an attorney will advise pursuing bankruptcy before going through with the divorce.
In this scenario, you can eliminate marital debts, then divorce without needing to divide those debts between yourselves. There a couple things to consider with this scenario.
It can be challenging for divorcing couples to work together to get through the bankruptcy. However, it reduces or eliminates lingering debts, allowing for a smoother divorce proceeding.
You and your spouse could save some significant money by sharing an attorney who works on both your behalf. Often, couples who takes this route end up being able to salvage or save some of their assets.
Divorce Before Bankruptcy
There are a few situations where it might make sense to navigate divorce before bankruptcy. This might greatly depend on the Chapter 7 bankruptcy laws of your state.
Chapter 7 bankruptcy can cancel qualifying debts all together. To qualify for this debt cancellation your median income together has fall below the state’s median income level. Together you might be over that amount. In this situation, you might divorce and divvy up the debt, the file for bankruptcy. As separate entities, you may fall below the required income level individually.
The other possibility is that you and your spouse are at such an impasse there is not a way to navigate the bankruptcy as a married couple.
Bankruptcy and Child Support
You should know that family debt obligations are given top priority in bankruptcy hearings.
Child support payments, even those in arrears, are not cancelled in bankruptcy. Whichever parent is responsible for child support as a result of divorce will be expected to continue paying following a bankruptcy.
Going Through Divorce and Bankruptcy at the Same Time
Making the decision to divorce or go through bankruptcy is a huge life decision. Each has its own legal ramifications. If you are facing this situation, you must be sure you are getting the very best legal advice.
Call us at (402) 415-2525 to set up your free initial consultation. We want to help you make important decisions related to your divorce and bankruptcy.