Bankruptcy and Divorce: Timing is Everything
Divorce and bankruptcy can both be overwhelming and stressful situations, and dealing with them at the same time can be very daunting. However, planning ahead can make both your bankruptcy and your divorce less complicated and less expensive with the assistance of Garden City divorce attorneys. The decision to file for bankruptcy before or after a divorce depends on the circumstances, such as where you reside, how much property and debt you have, and the type of bankruptcy you want to file.
Which Comes First: Bankruptcy or Divorce?
Deciding whether to file for bankruptcy before or after a divorce is an important initial question and will depend on the circumstances surrounding your divorce and debts. The following are some aspects to consider:
- Whether to File Jointly or Individually
Deciding whether to file bankruptcy jointly with your spouse or individually can help you decide if it is best to pursue the bankruptcy or divorce first. If you want to file jointly, then you would file bankruptcy first, while you and your spouse are still married. It is common for divorcing couples to file bankruptcy together because it is more efficient. A married couple filing jointly will file a “joint petition” that includes both spouses’ financial information in one set of paperwork. Some of the advantages that come with filing a joint petition include:
- The bankruptcy will wipe out both spouses’ qualifying debts.
- It decreases the number of matters the divorce court has to decide.
- Declaring bankruptcy together is less expensive than filing bankruptcy separately.
While it is an option, married couples are not required to file jointly. If one spouse requires
bankruptcy protection right away, an individual petition may be the best option. Therefore, if you choose to file bankruptcy first, filing individually is an option also.
If you are considering filing for divorce first and bankruptcy second, each spouse may find it easier to qualify for bankruptcy individually after the divorce due to a joint loss in income. However, when it is possible, and if they can still communicate with one another, many couples find that filing for bankruptcy together before a divorce makes the process go more smoothly and can help to streamline debt and property split difficulties, lowering the cost of your divorce fees. Meanwhile, the costs for combined and individual bankruptcy filings are the same. Discussing your options with a divorce lawyer is the best way to determine which process is more effective for your circumstances.
- Division of Property
When a couple jointly wipes away their debts through bankruptcy, it simplifies the property division process in their divorce. However, before you file a combined bankruptcy, be sure to check that your state provides enough exemptions to safeguard all the property you and your spouse hold. If you file jointly, certain states enable you to double your exemption amounts. Therefore, if you own a lot of property, filing a joint bankruptcy may be a preferable option if you can double your exemptions. If you cannot double your exemptions and have more property than you can exempt in a combined bankruptcy, filing independently after the property has been divided in the divorce may be more favorable. Also, bear in mind that if you file for bankruptcy while your divorce is continuing, the automatic stay will prevent the property partition process from proceeding until the bankruptcy is finalized.
- Marital Debt
In a divorce, determining which debts should be assigned to each spouse can be a
time-consuming and expensive process. Furthermore, a divorce ruling that requires one
spouse to pay a specific debt does not affect the other spouse’s responsibilities to that
creditor. Attempting to collect from your ex-spouse, on the other hand, usually entails paying more money in fees to pursue them in court. As a result, filing for bankruptcy and wiping off both couples’ combined debts before a divorce may be in both spouses’ best interests.
Which Type of Bankruptcy Should I File?
Chapter 7, Chapter 11, and Chapter 13 are three different types of bankruptcy and it is important to understand which one is the best choice for your situation. Deciding which type is best for you may come down to factors such as income, household size, and what sorts of debts you owe. Here is a breakdown of the different types:
- Chapter 7: This type of bankruptcy is a liquidation plan designed to eliminate unsecured debts such as credit card debt and medical expenses. It typically involves agreeing to liquidate your assets so that you can pay off as much debt as possible. Once that is done, the remaining debts are dismissed. Some assets can be exempt from liquidation. This type of bankruptcy is quick and can usually be completed within a few months. Eligibility to file for this type depends on your income. If your income is below the median for the state where you are filing, you are likely eligible, and if it is higher than the median, you must pass a test to determine if you are eligible.
- Chapter 11: This type is often used for reorganization of a business, because the debtor restructures and creates a plan to pay back their creditors. This is a lengthy process that requires a court-appointed trustee overseeing the debtor’s plans and can take years to complete.
- Chapter 13: This type of bankruptcy requires you to return a portion of the entire debt via a repayment plan. The plan must be submitted to the court and approved. It is a lengthy process that could run for three to five years. Typically, the debtor pays off priority and secured debts in full (taxes, auto loans, etc.), but other debts may only be partially paid (medical bills, credit card debt, etc.). Remaining debts can be dismissed at the end once the repayment plan is successfully completed.
Everyone’s situation is different and there are many factors to weigh when considering both bankruptcy and divorce. Contacting the attorneys at Fass & Greenberg law firm is always the best initial move if you find yourself facing the prospects of both divorce and bankruptcy. They can handle the intricacies of divorce, help you avoid any unnecessary stress, and ensure you make the smartest moves for the best chance at efficient and successful outcomes in both your divorce and bankruptcy proceedings.