Should You Get Divorced Or File For Bankruptcy First?

When it comes to filing for bankruptcy or getting divorced, the order these things are done in can have an impact on each other.  Factors such as the bankruptcy proceeding type and the timing related to when you file could cause a divorce to have different outcomes with the property you have.  Keep reading to understand why the order matters.

Chapter 7 vs 13

A Chapter 7 bankruptcy only takes a couple months to complete, so this bankruptcy proceeding type could be completed before a divorce in most situations.  Bankruptcy will change a couple's debt situation, and that can be beneficial for some people.  That's because divorces can cause a lot of bitterness when it comes to debt. 

Using Chapter 7 rather than 13 will practically eliminate all the debt that you have, making a divorce less-contentious for everybody involved.  While student loan of unpaid taxes won't be wiped out, it will get rid of other debt that would cause problems trying to associate with one person rather than the other.

If Chapter 13 proceedings are used, be aware that it could take years to complete the process, and you might not want to remain married until the bankruptcy proceedings are finalized.  Since Chapter 13 will also reorganize your debt instead of eliminate it, debt will still be owed.  It will be better to file bankruptcy as an individual rather than a couple for Chapter 13, so it should be done after the divorce.

Chapter 7 Pre-Divorce

If your Chapter 7 bankruptcy is completed before your divorce, it gives you the benefits of having twice as many exemptions. This varies from state to state, so check with your bankruptcy lawyer about if this applies to you.  What this means is that you'll be more likely to keep property that would otherwise be surrendered, because you each receive an exemption when filing bankruptcy as a couple. 

When you wait to file bankruptcy as an individual, it means that you might end up losing property that would otherwise be split between the two of you. This is a time when it helps to be on the same page to hold onto more assets.

Chapter 7 Post-Divorce

Be aware that there is a means test to prevent people from filing for bankruptcy if they have a higher income. As a married couple, your combined income is what is considered for this means test.  After the divorce, your sole income is what is considered when filing as an individual.

Since state laws are different, it is worth considering if you'll be able to pass a means test after the divorce.  You may find that your combined household income as a married couple wouldn't have made it possible, but after the divorce it is. A bankruptcy lawyer like D Derk Demaree Attorney at Law can help you make these calculations and find out when it will be best to file for Chapter 7 bankruptcy.