Bankruptcy and Divorce
Divorce is one of the leading causes of financial ruin. The key consideration is whether should you file bankruptcy before or after getting divorce.
Chapter 7 or Chapter 13?
There are two types of bankruptcy to consider – Chapter 7 and Chapter 13. If you qualify for a Chapter 7 bankruptcy, then filing it before your divorce may be the best option. Chapter 7 bankruptcy can be filed and complete in a few months. You and your spouse can file jointly, discharge your debts, then divorce afterwards.
However, if you are filing Chapter 13 bankruptcy, it may be best to file your bankruptcy case before getting a divorce because this type of bankruptcy lasts three to five years. If you plan to divorce within that time, you will need to go through the process of having the bankruptcy case separated or closed once you and your spouse officially end the marriage. Bankruptcy may put your divorce on hold.
Household Income
Your household income is another factor you should consider when deciding if you are filing bankruptcy before or after divorce. If you and your spouse file a joint bankruptcy, you will save money on filing fees and the cost of hiring a lawyer. However, since your household income will be determined by what both you and your spouse earn, filing bankruptcy before your divorce could mean that your income is too high for Chapter 7 bankruptcy. In that case, filing Chapter 7 bankruptcy after your divorce might be beneficial.
Protecting Assets
Before rushing to file bankruptcy before your divorce, work with a bankruptcy attorney to determine how your assets will be protected if you file a joint bankruptcy with your spouse. This is important if you jointly own property such as a house, vehicles, and other assets. And depending on the jurisdiction you live in, filing a joint bankruptcy with your spouse could give you extra protection in the form of double exemptions. For example, if your home value is exempt up to $25,000 for a single bankruptcy filer, filing jointly could give you a bonus exemption making the house exempt for up to $50,000.
Status of your Relationship
If you are on good terms with your spouse, then filing for bankruptcy before a divorce could be a viable option. However, attempting to file bankruptcy with a spouse who is hostile to your financial interests could cause more harm than good. When considering whether you should file bankruptcy before or after divorce never overlook the status of your relationship.
If you want to discuss when filing for bankruptcy is best, speak give Bundy Hudy Legal Services a call today.
NOTES FROM BANFIELD COULING LAW & MEDIATION:
(1) Our sincere thanks to Anissa Hudy, JD for the helpful and timely article.
(2) For more information on Ms. Hudy’s practices areas, visit: https://www.hudylaw.com/
PLEASE NOTE: This blog is not intended to constitute legal, financial or tax advice. We do not recommend making important decisions regarding bankruptcy, divorce or any other legal matter without the benefit of specific legal or professional advice addressing your issues and concerns. We at Banfield Couling Law and Mediation PLLC are here to help navigate your legal matter at any stage of your divorce or family law matter.