The Intersection of Bankruptcy and Divorce

| Apr 20, 2012 | Bankruptcy |

As the old saying goes, “When it rains, it pours.” Many people going through the emotionally-intense divorce process also face significant debt, especially in this economy. The thought of dividing your property and debt during your divorce can make things seem impossible. Should you file for bankruptcy? If so, when is the best time to file?

Many people fear that filing for bankruptcy will not only make their lives more difficult during an already difficult time, but will also lead to more challenges in the future. What they do not realize is that bankruptcy can offer a fresh financial start – a positive change.

Bankruptcy Before or After Divorce?

If you decide to file for Chapter 7 or Chapter 13 bankruptcy, should you file before or after your divorce? The answer: it depends on a number of factors.

If you file for bankruptcy before divorce, you and your spouse can file together. This means you will only have to pay one bankruptcy filing fee. After divorce, you must file separately. However, filing bankruptcy before divorce also means that both of your incomes will be combined in determining whether you are eligible for Chapter 7 bankruptcy (through the Chapter 7 means test).

Waiting to file for bankruptcy until after your divorce raises one other significant issue. If the debts you jointly hold with your ex-spouse are discharged during bankruptcy and your ex-spouse does not file for bankruptcy, he or she may still be liable for those debts.

Bankruptcy During Divorce

If you file for bankruptcy during your divorce, you will not be able to divide property until after the bankruptcy proceedings are complete. This is due to an “automatic stay,” which puts certain lawsuits against a debtor on hold during bankruptcy. This is important because property division includes dividing debts. Since those debts may be discharged during bankruptcy, property division could be much simpler after the bankruptcy.

If you are considering divorce and bankruptcy, an attorney experienced in both family law and bankruptcy law can help you take the right steps toward a fresh start.