Filing for Bankruptcy and Divorce: Time it Right - Westgate Law

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Filing for Bankruptcy and Divorce: Time it Right

Bankruptcy and divorce are quite the pair. They often follow each other around like newlyweds. If you are contemplating filing for both bankruptcy and divorce, be aware that the timing needs to be right.

Bankruptcy and Divorce: Which Should Come First?

Generally speaking, bankruptcy takes precedence over any divorce proceedings. The divorce may be delayed as the bankruptcy needs to be completed before assets and liabilities can be distributed. That means that if both your divorce and your bankruptcy are in process at the same time, your bankruptcy has to be complete before your divorce can be finalized. This makes filing simultaneously a moot point. The process itself prevents them from occurring at the same time.

Remember that bankruptcy handles debt. Debts are tied to an individual’s name and/or social security number so bankruptcy can obviously affect the way debt is treated during the divorce proceedings. Bankruptcy courts also consider income of filers. Any income will be treated differently depending upon the status of the filer: married, single, separated or divorced.

Filing for Bankruptcy First:

Why should you file for bankruptcy before filing for divorce? If couples planning on filing for divorce are on fairly good terms with each other, it’s a good idea to consider filing for bankruptcy prior to starting divorce proceedings. Filing jointly will allow all debts to be addressed under the umbrella of one bankruptcy case. Joint debts can be wiped out and exemption amounts may increase. It is particularly helpful to declare bankruptcy before filing for divorce if one spouse brings in all the income. It will increase the likelihood that this spouse will qualify for Chapter 7.

Couples who qualify for Chapter 7 bankruptcy can expect to see the process completed within 90 days. Completing the bankruptcy before filing for divorce completely eliminates built up, unsecured debt and can avoid a lot of the fighting typically associated with division of debt during divorce proceedings/negotiations. If filing for Chapter 13, remember that both you and your spouse will be held responsible for adhering to the agreed upon repayment plan. It could also inhibit your ability to sell property to divide assets.

Filing for Divorce First?

Is there any instance in which we would recommend filing for divorce before declaring bankruptcy? Yes, it could make sense to do so if your joint income is too high to qualify for Chapter 7 bankruptcy. In some cases, an individual may make significantly less than their spouse. By divorcing first, they may be eligible for a Chapter 7 allowing them to get rid of debt in their name without the repayment plan that is required under Chapter 13. In certain instances, both spouses could be eligible for Chapter 7 after their divorce depending upon individual incomes even if they weren’t eligible when filing jointly.

Another instance in which it could make sense to divorce first, before filing for bankruptcy is when trying to protect certain assets. With the right planning, a divorce can remove specific assets from the influence of the bankruptcy trustee. For instance, one spouse could be awarded the house in the divorce settlement. If the proper judgment and proper transfer of title is completed, the spouse awarded the house can be protected from creditors.

The third instance in which divorce might need to take priority over bankruptcy is when you expect to owe substantial support payments. It is helpful to know the amount that will be owed monthly prior to divorce proceedings. If not, the repayment plan would be based on an income that you wouldn’t have access to when the time comes.

If you need to file both bankruptcy and divorce, consider each carefully in connection with your own situation. Don’t assume that it won’t take any extra thought, but don’t be scared of your prospects either. Call Westgate Law today for an expert opinion on what the best plan would be for you.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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