Which to File First: Bankruptcy or Divorce

Imagine No Debt

It isn’t unusual for financial issues and divorce to go hand in hand. Money problems are frequently cited as one of the top reasons that couples separate. When bankruptcy and divorce are intermingled, it generally makes sense to pursue the bankruptcy first. In that situation, however, it’s important to consult an experienced bankruptcy attorney to make sure a personal bankruptcy filing is the best first step to take.

Bankruptcy resolves most money issues. Generally speaking, the debts of most couples are the responsibility of both parties. In a Chapter 7 bankruptcy, most non-secured debt, including credit cards and loans, can be liquidated. In a matter of four to six months, a couple can go from crushing debt to virtually no debt, with the exception of secured loans such as a mortgage. In addition, a couple’s assets are seized once personal bankruptcy is filed. Usually, there are exemptions for the family home and a vehicle, as well as most of the personal items in the house. It’s even possible that some couples may want to reassess their desire for a divorce once the debt has been removed. If not, starting from zero, so to speak, will make it much easier in the divorce proceeding.
Save money by filing for bankruptcy

When a couple must pay legal fees for both a bankruptcy and a divorce, any possibility to save money should be explored. By filing for bankruptcy first, the couple saves the expense of separate bankruptcy filings after the divorce. That’s twice the financial impact in filing costs and attorneys fees. Make sure to take advantage of a consultation with a bankruptcy attorney to ensure there are no unusual financial complications that might make filing for divorce first the smarter option.
When to file for divorce first

If there are significant property issues, it may be necessary to propose a Chapter 13 repayment plan so that property is not seized. However, because the repayment plans are generally five years long, most couples won’t want to stay together that long to resolve their financial issues. In that situation, a couple may prefer to seek a divorce first, and then individually file for bankruptcy after the divorce.
Child support not an issue

Bankruptcy law does not allow a spouse to liquidate child support and maintenance that’s been ordered as part of a divorce settlement. A spouse should not be concerned about filing for divorce first, only to have an ex-spouse then file for personal bankruptcy. A bankruptcy attorney can confirm that child support is one of the debts that cannot be discharged in Chapter 7. In a Chapter 13 repayment plan, child support must be fully repaid, under federal bankruptcy laws.

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