How Does Divorce Impact Filing for Bankruptcy?
Posted By The Pritchard Law Firm || 05/13/2016
If you know anyone who has gone through a divorce, they are sure to have a story or two about the troubles they faced from the point of filing to finalization. If you know anyone who has gone through a bankruptcy, they, too, will have tales of hardship. But what about going through a divorce while you are going through a bankruptcy? How complicated can that be? And can one filing impact the other?
The general consensus from family law attorneys, bankruptcy lawyers, economists, and the like is that you should do all you can to avoid simultaneous filings. Not only will this be unexpectedly complicated, it might not even be allowed by your local divorce court since the judge won’t know what is going to remain your property, marital or otherwise. Whichever can be postponed with the least consequences, your divorce or your bankruptcy, should be pushed back while the other one finishes.
Consider how divorce impacts bankruptcy and vice versa to make your decision:
- Costs: One person filing for bankruptcy owes the court the same fees as a family of 20. If you file for bankruptcy before divorcing, it will theoretically be cheaper for you if your spouse is willing to pay for half of the fees.
- Speed: Chapter 7 bankruptcy can sometimes resolve in a matter of months but Chapter 13 bankruptcy relies on a 3 to 5 year plan by definition. If your divorce cannot be postponed for several years, you should either divorce first and then file for bankruptcy or rely on Chapter 7.
- Exemptions: A proper bankruptcy filing will let you keep some of your property, known as exemptions. You need to determine the total value of your marital and separate property early on. If you can jointly file for bankruptcy to get more exemptions, file before divorcing. If you are not permitted to double exemptions through joint filing, you might want to divorce first, split your property accordingly, and then each file individually.
- Debts: If you and your spouse have collected considerable debts together, keep in mind that they will remain each of your responsibilities after divorce, unless stated otherwise specifically. Most divorcing couples with significant debts try to simplify the matter by filing for bankruptcy first, wiping out as much as they can together, and then finalizing their divorce.
- Incomes: Not just anyone can file for Chapter 7 bankruptcy. You will first need to take a means test to show that you make less than the average household in your state. Divorcing before filing for bankruptcy can cut your income in half, increasing the chances of you qualifying for Chapter 7.
In the end, it really is a give-and-take situation. Postponing bankruptcy to complete your divorce has just as many benefits and disadvantages as the inverse. To get to the bottom of the matter and find the right solution for you and your spouse, contact The Pritchard Law Firm. Our Fort Worth bankruptcy attorney can provide a free case evaluation to steer you in the right direction. All you need to do is dial today.