Are you unsure whether it’s better to file for divorce or bankruptcy first? The decision between Divorce & Bankruptcy can be complex, and several factors should be considered to make an informed choice. Proper planning can make both your bankruptcy and divorce proceedings smoother and less expensive. Here’s what you need to know about navigating these two significant legal processes.
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The Interconnection of Divorce & Bankruptcy
Divorce is a common reason people declare bankruptcy. Financial strain from legal fees, division of assets, and supporting two households can push individuals toward bankruptcy. The decision to file for bankruptcy before or after a divorce depends on your location, the amount of debt and property you own, and the type of bankruptcy you plan to file.
Bankruptcy: How to File a Case
The bankruptcy process begins when an individual, married couple, or business submits bankruptcy paperwork. For married couples, this usually means filing a joint petition that includes financial information for both spouses.
Joint Petition for Bankruptcy
Divorcing spouses often file jointly because it is more efficient. Here are the advantages of filing a joint petition:
Debt Discharge: The bankruptcy will discharge (erase) the debts of both spouses, reducing the number of issues that need to be resolved in divorce court.
Cost Efficiency: It is cheaper to file for bankruptcy jointly than separately, saving on legal fees and court costs.
Separate Bankruptcy Filing
However, married couples aren’t required to file jointly. An individual bankruptcy filing may be necessary if one spouse requires immediate protection. This approach might be beneficial if the debts needing attention are significant or if each spouse has different financial circumstances.
Chapter 7 vs. Chapter 13: If one spouse needs Chapter 7 bankruptcy (which involves liquidating assets to pay off debts), while the other might find a Chapter 13 payment plan (which involves repaying debts over time) more suitable, separate filings could be more practical. If you are considering filing Chapter 13 bankruptcy, it might be best to do so after your divorce to simplify your financial situation.
Property Division
Property division can be simpler if you eliminate joint debts through bankruptcy first. Here’s how to approach it:
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Exemptions: Before filing for joint bankruptcy, ensure your state provides enough exemptions to protect your property. Some states allow you to double your exemptions if you file jointly, which can be advantageous if you have substantial assets.
Separate Filings: If you cannot double your exemptions and have more property than you can protect in a joint bankruptcy, it may be better to file separately after the divorce.
When filing for bankruptcy while a divorce is ongoing, the automatic stay will also halt the property division process until the bankruptcy is completed. This pause can give you time to manage debts and assets more effectively.
Discharging Marital Debt
Determining which debts each spouse should be responsible for during a divorce can be time-consuming and expensive. Importantly, requiring one spouse to pay a debt in a divorce doesn’t eliminate the other spouse’s obligation to the creditor.
Shared Responsibility: For example, if your ex-spouse is ordered to pay a joint credit card debt but fails to do so or declares bankruptcy, the creditor can still pursue you for payment.
Reimbursement Rights: If you end up paying the debt because your ex-spouse violated the divorce decree, you have the right to seek reimbursement. However, this may require additional legal action and expenses.
In many cases, it may be best for both spouses to declare bankruptcy before the divorce and eliminate their debts. This approach can simplify the divorce proceedings and reduce the financial burden on both parties.
Chapter 7 Bankruptcy Income Qualification
The decision of whether to file Chapter 7 bankruptcy before or after divorce depends on your income and household size.
Income Limits: To qualify for Chapter 7 bankruptcy, your income must be below a certain threshold. When filing jointly, you must include your combined income, which may be too high to qualify.
Household Size: Chapter 7 income limits are based on household size, and a household with two people isn’t twice as large as a one-person household. If your combined income is too high, it may be necessary to wait until both spouses have separate households after the divorce before filing for bankruptcy.
Summing Up!
Deciding whether to file for divorce or bankruptcy first depends on various factors, including your financial situation, the type of bankruptcy you need, and state laws regarding property and exemptions. Consulting with legal and financial advisors can help you navigate these complex decisions.
Ultimately, the goal is to minimize financial strain and legal complications, allowing you to move forward with a fresh start. By understanding the interplay between Divorce & Bankruptcy, you can make informed decisions that support your long-term financial health and personal well-being.
Remember!
Navigating the complexities of divorce and bankruptcy can be overwhelming, but you don’t have to face it alone. At Tenina Law, our experienced legal team is here to guide you through every step of the process, ensuring that you make informed decisions that best serve your financial and personal well-being.
Don’t let financial stress or legal uncertainties hold you back any longer. Contact Tenina Law today for a consultation, and let us help you achieve a fresh start. Call us at (213) 596-0265 to schedule your appointment. Take the first step towards a brighter future with Tenina
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