How bankruptcy and divorce can be intertwined

On Behalf of | Dec 17, 2015 | Chapter 7 Bankruptcy |

Many Texas marriages founder due to adverse financial circumstances. When people decide to end their marriage as well as seek bankruptcy protection, they need to be aware of some important factors that may change the order in which they should file the two cases. If they are not careful, they may be prevented for getting a discharge through Chapter 7 simply because of filing order problems.

When a person who has significant debts is married to a spouse with a high income, filing for bankruptcy before filing for divorce can be a mistake. Bankruptcy law takes household income into account for purposes of the Chapter 7 means test, although certain deductions may be available. Even if the debtor files individually and has an income that would otherwise qualify, their spouse’s income may make them ineligible. A person who is in this situation should thus wait to file the Chapter 7 petition until after the divorce filing.

If both spouses are burdened with overwhelming debt, it might make better since to file the bankruptcy as a joint petition before filing for divorce. That way, the couple may both gain relief from the debt discharge. People also need to understand that once they file bankruptcy, their property becomes part of the bankruptcy estate, and this will delay the property division portion of the divorce proceeding until the bankruptcy ends or unless the bankruptcy judge otherwise agrees.

People who need the debt relief afforded by Chapter 7 bankruptcy as well as the personal relief obtained through a divorce may want to consult with a bankruptcy lawyer. Their attorney can review their circumstances and advise them regarding when each case should be filed. Their attorney may also work closely with their client’s family law attorney to ensure that the proper path is followed.